Oil & Gas - Inflection Point For CGD Sector: ICICI Direct

ICICI Direct Report

As per media sources, the Kirit Parikh committee is likely to suggest a ceiling price of $6.5-7/metric million British thermal unit for domestic gas.

This ceiling may be increased by $ 0.5/mmbtu every year and could eventually be market linked by the end of the fourth year. Media reports also state that the committee recommends bringing natural gas under goods and services tax.

If implemented, this move would be positive for downstream companies such as Indraprastha Gas Ltd., Mahanagar Gas Ltd. and Gujarat Gas Ltd., and marginally negative for Oil and Natural Gas Corporation Ltd. (neutral for Reliance Industries Ltd.).

We expect lower sourcing costs (|6-8 per standard cubic metre) to benefit the city gas distributions on the margin front to an extent and rest be passed onto to customers (raising lucrativeness of compressed natural gas, piped natural gas over alternate fuels).

For high-temperature, high-pressure fields, we expect an element of pricing freedom to encourage continued investments in that field.

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