CNG and Domestic PNG Consumers to Benefit from Likely Gas Price Decline - India Ratings

New Delhi, March 23, 2015: India Ratings & Research (Ind-Ra) believes that the compressed natural gas (CNG) prices in New Delhi could decline by INR1.5/kg while domestic piped natural gas (PNG) prices could decline by INR1/scm (standard cubic meter) in case domestic natural gas prices are cut by 7.5% to USD4.67/mmbtu (million metric British thermal unit) from USD5.05/mmbtu. The domestic gas prices are due for a possible downward revision for the period 1 April 2015 to 30 September 2015 as the bench mark indexes of Henry Hub in the US, National Balancing Point in the UK, Canada’s Alberta Hub as well as Russia’s gas prices have all declined over January 2014 to December 2014.

Ind-Ra also believes that a 7.5% decline in domestic natural gas prices could be marginally positive for the city gas distribution (CGD) entities as CNG and domestic PNG fuels could become even more competitive with respect to diesel (31% cheaper versus 28% earlier) and LPG (1% more expensive versus 5% earlier) respectively. Historically, the CGD entity in Delhi NCR - Indraprastha Gas Limited (IGL; ‘IND AAA’/Stable) has passed on such benefits to the end consumers while keeping its operating margins upwards of INR5/scm.

The benefit is likely to accrue to only CNG and domestic PNG consumers as post the change in the gas allocation policy, domestic gas is being supplied only to these consumer segments. However, the quantum of benefit accruing to the consumers would depend on the final gas prices announced, the USD/INR exchange rate and the EBITDA/scm considered by the respective CGD entity.

Depending on the range of these variables, Ind-Ra is of the opinion that CNG prices in Delhi could decline by INR1.1/kg-INR3.3/kg while domestic PNG prices could decline by INR0.8/scm-INR2.3/scm. However, in the likely scenario Ind-Ra expects CNG prices in Delhi to decline by INR1.5/kg while domestic PNG prices could decline by INR1/scm considering gas price at USD4.67/mmbtu, USD/INR at 62.75 and EBITDA/SCM of INR5.3.

(Source: Senior Manager - Corporate Communications and Investor Relations, India Ratings & Research A Fitch Group Company, Mumbai.)