The government has capped trading margins on the resale of gas produced from deepwater blocks to cut profiteering by traders and bring down prices. The Centre fixed the ceiling price of gas produced from the deepwater fields as the nation wanted to increase the share of natural gas in its energy mix to 15% by 2030 from the current 6.2%.
“With these rules, nearly 25 MMSCMD of incremental domestic natural gas from difficult fields (including existing and upcoming production) under the ceiling price mechanism is likely to be available to CGD and fertilizer sectors at a ceiling price. This price is likely to remain lower than the spot market prices of imported natural gas by at least $6/mmbtu and could result in savings of nearly ₹15,000 crore for CGD and fertilizer sectors in FY24," the report said.
“It should result in lower subsidy outgo for the government, especially related to the fertilizer sector," it added.
CareEdge Ratings said that the profitability margins of domestic natural gas trading companies could be negatively impacted in the medium to long term. Furthermore, reliance on imported natural gas may increase for sectors other than CGD and fertilizers.
“With these new rules, the players (including gas traders) could be less interested in the auction for domestic natural gas from difficult fields given the low marketing margin prescribed by the government and higher priority being given to CGD and fertilizer sectors. While these rules would be applicable prospectively, we believe that existing contracts for the sale of natural gas from difficult fields would continue as it is till their expiry leading to largely no immediate impact for traders of such gas while their profit margins could be impacted in the medium to long term,“ said Hardik Shah, Director, CareEdge Ratings.
“Also, it is expected that in the upcoming auction for natural gas from difficult fields, players from CGD and fertilizer sectors may take away sizeable natural gas volume at the Govt. defined ceiling price which could lead to sizeable savings for these players along with lower dependence on subsidy from Govt. of India," he added.
