India’s Govt gets to control nat gas prices

Bernstein Research said in the longer term the key point is that the government will become the de facto regulator of both onshore and offshore gas prices. “This is important because we believe that RIL needs prices higher than $4.2 per mBtu to develop the next phase of its deepwater gas fields. Assuming the government is aligned with the need to develop India’s domestic gas resources, then prices will be adjusted higher to enable this. The downside is that excess returns will be capped as the government balances consumer interests with those of RIL.”

According to Goldman Sachs, “We had currently built in a midpoint of gas price of only $3.27 per mBtu for the gas supply from RIL to RNRL from FY12 onwards. We believe this verdict implies a potential upside of Rs 25 per share for RIL. Given that there is clarity on gas volume usage and allocation, we believe RIL is now in a better position to optimise gas output, manage its reservoir and reduce D-6 costs.”

Business Standard