Deutsche Bank says the hike will be positive for the sector, and says Oil and Natural Gas Corp Ltd and Oil India Ltd will be the biggest beneficiaries, followed by Reliance Industries Ltd.

Shares of ONGC and Reliance Industries gained more than 2 percent, while Oil India rose 3.3 percent.

Govt's new gas pricing formula

On January 10, the Ministry of Petroleum and Natural Gas has notified new gas pricing formula, 'Domestic Natural Gas Pricing Guidelines, 2014', that will be almost double the rate of all domestically produced fuel to USD 8.2-8.4 a unit starting April 1.

The notification will apply to all natural gas produced domestically, irrespective of the source, whether conventional, shale or coal-bed methane (CBM) from April 1, 2014.

It said gas from April will be priced at an average price of liquid gas (liquefied natural gas or LNG) imports into India and benchmark global gas rates. This formula will be applicable for five years (March 31, 2019).

The new rates, which will change every quarter, based on the 12-month average of global rates and LNG import price with a lag of one quarter, will apply to all gas produced by both public sector firms like ONGC and private companies like Reliance Industries Ltd.

 "These guidelines shall also be applicable for natural gas produced by ONGC/OIL from their nominated fields," the notification said.

RIL will get the benefit of the new price for gas from its existing fields like MA in the KG-DWN-98/3 or KG-D6 block and new/upcoming ones like R-Series and satellite in the KG Basin block and the ones in North East Coast block NEC-25. However, for the main Dhirubhai-1 and 3 (D1&D3) gas fields in KG-D6 block it will have to submit a bank guarantee to cover its liability if the charges of hoarding gas by deliberately producing less during last three years, are proved.

"In respect of D1 and D3 gas discoveries of Block KG-DWN-98/3, these guidelines shall be applicable subject to submission of bank guarantees in the manner to be notified separately," the notification said.

The bank guarantee, which will be equivalent to the incremental revenue that RIL will get from the new gas price, will be encashed if it is proved that the company hoarded gas or deliberately suppressed production at the main D1&D3 fields in the eastern offshore KG-D6 block since 2010-11.

Barclays Equity Research estimates the price will be USD 8.3 per million British thermal unit in 2014-15 as against the current rate of USD 4.2. This will rise to USD 9.1 in the following year and then to USD 9.4 in 2016-17.

The Ministry said a committee comprising of official of the ministry and the Directorate General of Hydrocarbons (DGH) has been constituted for drafting the bank guarantee and supplementary agreement in respect of natural gas pricing guidelines for the D1&D3.

While the Cabinet had in June last year approved the Rangarajan pricing formula, it was not notified pending finalization of how D1&D3 gas is to be priced. The Cabinet on December 19 agreed to allow RIL to raise prices subject to bank guarantee.


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