Gas prices will fall by $1.5/mmBtu if Kirit Parikh panel recommendations are implemented, says IGL

The increase in transmission tariffs will lead to rise in costs, say Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL), but the two gas distribution companies will look at any price revisions only after a decision on the Kirit Parekh panel recommendations on April 1, which could lower gas costs.

India's gas sector may witness a significant decline in prices if the recommendations of the Kirit Parikh Committee are implemented.

In an interview with CNBC-TV18 on March 23, Pawan Kumar, Director-Commercial at Indraprastha Gas Limited (IGL), said "If Kirit Parikh Panel recommendations are implemented, there will be some reduction in the input gas cost, there will be a reduction of $1.5/mmBtu."

Ashu Shinghal, Managing Director of Mahanagar Gas Limited (MGL), meanwhile, hailed the government's decision to increase tariffs for GAIL pipelines. “It is a good move by the government of India because the unified tariff as such will be beneficial for the industry and it will reduce the location advantage or disadvantage to any industry,” he said.

He added that any tariff hike would be passed on to customers. "This is a continual basis, so we cannot keep it on our books. It has to be passed through. If it increases, we have to pass through. If it decreases, we have to pass through," he explained.

Shinghal also expects that the Kirit Parikh Committee’s decision should lead to a decline in gas costs from April 1.

Their remarks come a day after the Petroleum and Natural Gas Regulatory Board (PNGRB) announced the new tariff of integrated natural gas pipeline of GAIL (India) would be Rs. 58.61/MMBtu, which is 45 percent higher than the current tariff.

GAIL has told CNBC-TV18 that the increase in pipeline tariff will aid its EBITDA by Rs 1600 crore at current volumes. However, the firm will appeal to PNGRB for revision as this hike considers lower gas costs and expenses.

The gas sector in India has been facing numerous challenges, including high prices and a lack of adequate infrastructure. The implementation of the panel’s recommendations will go a long way in addressing these issues.

Pinakin Parekh, ED-Metals and Mining, Oil and Gas, Cement at JPMorgan India believes that gas consumers will see significant cost reductions in coming months.

“Gas prices seasonally are lower at this point of time. If you are a gas consumer for the next few months, you would see costs reduce materially. India’s gas demand is price sensitive and a lot of demand consuming sectors were negatively impacted last year. We saw imports fall very sharply, this will reverse over the coming months. So I think the gas value chain should benefit from lower spot LNG prices at least for the next few months,” he explained.

Parekh added that this is difficult to extrapolate through the year, and that there is still no clarity on how Europe’s LNG import will position itself in the second half of the year, so his firm expects LNG prices to be volatile. Right now they are at the lower end of the range, he said.

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