Gas distribution companies' shares rally; Indraprastha Gas surges 10%

Shares of city gas distribution companies rallied up to 10 per cent intra-day on the BSE on Wednesday after the government cut the domestic natural gas price for the April-September period to $2.39 per million British thermal unit (mBtu).

Among individual stocks, Indraprastha Gas surged 10 per cent to Rs 427.70 and Gujarat Gas gained 6.04 per cent to Rs 246.65. Adani Gas was up 5.5 per cent while Mahanagar Gas and GAIL India were both up over 2 per cent each in an otherwise weak market. In comparison, the S&P BSE Sensex was down 3.5 per cent at 12:14 PM.

The new price for domestic natural gas is the lowest in six years since the Narendra Modi government introduced the new pricing formula in November 2014.

The rate for gas produced from difficult fields will be $5.61 mBtu on gross calorific value basis. This ceiling price will be applicable for deepwater, ultra-deepwater, and high pressure-high temperature areas, including the under-development fields of Reliance Industries in KG-D6 block in Eastern Offshore.

Tthe price of the majority of natural gas produced in the country, including by companies like Oil and Natural Gas Corporation and Oil India, will be down 26 per cent to $2.39 a unit from $3.23 a unit for the October 2019 to March 2020 period, according to a notification by the Petroleum Planning and Analysis Cell (PPAC).

Consequently, shares of Oil India and ONGC slipped on the development with the two falling 5.4 per cent and 4.6 per cent, respectively.
 

Besides the drop in prices, the current lockdown is likely to make business difficult for these companies with less demand. According to a report by Emkay, the current lockdown has led to a 15-20 per cent hit on demand due to the closure of most factories in sectors, excluding fertilizer, power and refineries. GAIL may see a 15-20 million standard cubic meter per day (mmscmd) decline in marketing volumes as the lockdown progresses, while transmission volumes may fall up to 10-15mmscmd, the report said.