RIL May Be the Largest Beneficiary Of The New Natural Gas Pricing Policy, Seeks To Work On New Field

With the Government toying with the idea of increasing the price of natural gas, RIL (Reliance Industries Limited) is poised to capitalize on a 15% profit margin, from its fuels in the newer fields at the KGD6. This change of policy from the government wherein it allows a two- fold increase in price could serve to boon for the company with it being the country’s largest energy giant.

The discussion came to the fore at the Rangarajan‘s panel that advocated a mechanism where the domestic pricing of natural gas will comply with the international principle. Putting into effect this policy will surge the present price to $ 8 as per the Emkay Global Financial Services Ltd, brokerage firm. This will give room for natural gas producers to earn profit, unlike the present scenario where it has been extremely demanding for them.

This decision will have a huge role to play in the conglomerate’s future growth, considering its colossal reserves of untapped natural gas. At present, the company sells gas from the KGD6 basin at $ 4.20 as per the current policy while it requires a minimum of $ 7 to break even with respect to the new wells. However, with the change in policy, it will be able to sell it at $ 8 per million British Thermal Units and will be in a position to gain a profit margin of around 15%. The price set by the government has hence proved to be a huge detriment to the company’s growth and production, making it strenuous for it to erode supplies and engage in the pricey exports.

The Rangarajan report has already cheered the market wherein Mukesh Ambani led RIL’s shares have mounted by 5.5%. M. Veerappa Moily, Oil Minister has notified about his ministry examining the report and weighing the consequences of implementing it, at present. Analysts including Mumbai based Emkay and Jagdish Meghnani claimed that Reliance would be the largest beneficiary with the price hike.

The report pegs on a policy that entails price and production linked bidding and revenue sharing with the government, opposing the present one that depends on cost recovery and suggests that one price be calculated from the volume weighted net-back price to the producers at the well-head of the exporting country for Indian import. It sets a 12-month average for the same. Another mechanism, according to it, would be adhering to the volume-weighted price of US’s Henry Club, UK’s NBP and Japan custom cleared ones.

RIL had earlier opposed uniform marketing margin claiming it to ungrounded and unfeasible, considering the differences involved in the associated costs and risks for every entity.