Indian gas price to drop to USD 5 in 3 years - Goldman Sachs
Goldman Sachs said that the new natural gas price of USD 5.61, which is already among the lowest in Asia Pacific, is likely to drop to around USD 5 per unit in 3 years due to the variables included in the formula.
The global financial major said in a report that "While the Indian government introduced a new gas price regime in October, we believe clear direction is needed on gas pricing for higher-cost projects, such as deepwater, to induce more E&P capex."
Stating that Indian prices for new projects are among the lowest in Asia Pacific, Goldman said that China pays explorers USD 11.9 per million British thermal unit rate for new projects while Indonesia and the Philippines price the fuel at USD 11 and USD 10.5 respectively.
Gas from offshore fields in Myanmar, where Indian firms ONGC and GAIL have stake, are sold to China for USD 7.72. Thailand prices gas from new projects at USD 8.2 per million British thermal unit.
Goldman said that “The only nations with lower rates are Vietnam and Malaysia. We also find that under the new pricing formula, the price of currently produced gas will gradually fall to USD 5 per million British thermal unit over the next three years from current USD 5.61 per million British thermal unit, implying falling margins as costs rise."
The government had last month approved a new formula that priced all domestic gas at weighted average of rates prevalent in gas-surplus economies of US/Mexico, Canada and Russia.
It said that "This, along with uncertain prospects in largely unexplored basins, could reduce the attractiveness of India as a future E&P destination, in our view."
On the premium that the government had last month said would be given to future discoveries in difficult areas like deepsea, it said that "The premium for gas from high-cost basins should be linked to international benchmarks rather than be based on block by block negotiation, in our view."
It said that "We believe clear direction is needed on gas pricing for higher-cost projects, such as deepwater, to induce more exploration and production capex."
Goldman said that encouraging domestic E&P was critical for the Indian oil and gas sector in order to check the rising dependence on imports.
It said that "We note that apart from high oil import dependence at 80%, India's gas import dependence has also jumped to 35% today vs 20% in FY10."
Source - PTI