Natural gas stocks rally on hopes of CNG, PNG price cut to aid demand; IGL soars 3%, GAIL up 2.5%
4 min read . Updated: 12 Apr 2023, 04:35 PM IST
PremiumStock market responded in a cheerful way amid the hopes of CNG and PNG price cut by manufacturers to boost gas demand. Stock prices of gas manufacturers like Oil India, GAIL, etc, closed in green on Wednesday
As several oil and gas companies have begun slashing their domestic natural gas prices to boost demand, natural gas stocks became a major attraction for investors on Wednesday. Amid hopes of CNG and PNG price cuts, shares of GAIL, Oil India, and Indraprastha Gas Limited zoomed during intraday trade.
GAIL India stock closed 2.5 per cent higher at ₹108.70 on NSE. Oil India's share price was up by 2.08 per cent at ₹260.50 at the time of closing. IGL shares closed 3.06 per cent higher at ₹482 apiece. Gujarat Gas share price zoomed by 0.82 per cent at ₹465.
On Wednesday, Fitch Ratings also gave a thumbs up to India's decision to limit domestic natural gas prices. It said that limiting domestic natural gas price from legacy fields to between $4 per million British Thermal Unit (mmbtu) and $6.5 will support margins for city gas distributors. It will also boost gas demand and reduce cash flow volatility of upstream producers.
“We expect such price cuts by city gas distributors and the fixing of a price ceiling to add certainty to domestic natural gas’ price advantage relative to alternative fuels, supporting gas usage for transportation and households, and overall demand in the medium term," Fitch said on Wednesday.
Price cut by domestic natural gas producers
Recently, the Indian government approved key recommendations of Kirit Parikh's committee related to natural gas pricing produced from natural gas fields. Afterwards, several oil and gas producers slashed their natural gas prices. The latest price cut was done by Gail India, Indraprashtha Gas, Mahanagar Gas, and Adani Total Gas.
GAIL announced a cut in its CNG and cooking gas (PNG) prices by up to ₹7 in various states. Mahangar Gas trimmed its CNG prices by ₹8 per kg and DPNG price by ₹5 per SCM in and around Mumbai. Indraprasthra Gas also reduced its CNG and PNG prices by ₹6 in Delhi.
Earlier, Adani Total Gas reduced its CNG rate by ₹8.13 per kg and those of piped natural gas by ₹5.06 per standard cubic metre (SCM).
Earlier, ICICI Direct has given a "Buy" recommendation on five stocks in the oil and gas basket after the latest price revision in the industry. These stocks are:
1. ONGC -- (Buy for TP of ₹180)
2. Reliance Industries -- (Buy for TP of ₹3,050)
3. Indraprastha Gas -- (Buy for TP of ₹463)
4. Mahanagar Gas -- (Buy for TP of ₹980)
5. Gujarat Gas -- (Buy for TP of ₹465)
The brokerage explained in its report that — the pricing formula for HPHT fields like that of Reliance Industries has not been changed while the price for April 1-October 1, 2023 is at $12.1/mmbtu (from US$12.5/mmbtu earlier). Prima facie, the step would be beneficial for domestic gas-consuming companies like IGL and MGL (80%, and 85% volumes sourced from APM, respectively), while GGL would benefit up to a limit (~25% of volumes largely sourced from APM).
The reduction in CNG and PNG prices comes after the government passed several key recommendations made by the Kirit Parikh Committee with respect to the pricing of natural gas produced from APM fields. These are legacy fields and largely held by PSUs like ONGC. The revision in domestic natural gas prices has come into effect from April 8th. Majority of the company's price revision in CNG and PNG has come into force from April 9th.
Also, on Wednesday, the MCX natural gas futures rallied by nearly 2% to 183.80 per mmbtu.
Meanwhile, on the global front, crude oil prices edged higher. Brent crude traded near $85.9 per barrel up by 0.3%, while US WTI also inched up by 0.2% to $81.70 per barrel.
ICICI Direct in its daily commodities outlook had expected natural gas futures to trade on a weaker note amid expectation of build-up of inventories as production is expected to rise in 2023.
Crude Oil prices remained stable on Wednesday ahead of the US inflation data later in the day. Brent crude gained 14 cents, or 0.2%, to $85.75 a barrel by 0917 GMT, while U.S. West Texas Intermediate rose 10 cents, or 0.1%, to $81.63 a barrel, reporter Reuters.
As per ICICI Direct, crude oil prices will likely to remain bullish amid rise in price forecast for US and global benchmark oil prices by EIA. Crude oil prices are expected to rise further due to decline in weekly inventory levels.
“Expectation of decline in weekly inventory levels could also support prices to rise towards its recent highs of 6720. Above 6720 it would rally towards 6800-6900," said ICICI Direct.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.