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Who can be the winners and losers of falling gas prices?

Who can be the winners and losers of falling gas prices?

The decline in the Indian stock markets, which started in April 2022, is not taking its name to stop. The small relief rally in May 2022 did not last and the market is going to a new low in the last one month. Concerns over global inflation have left investors restless, resulting in a 7 per cent fall in the NSE Nifty 50 index in June.

Even though geopolitical and inflationary concerns remain, the only hope is the sharp fall in crude and oil prices in the past few weeks. Given the country’s dependence on imports to meet more than 70 percent of its energy demand, global energy prices have a significant impact on India’s economy.

US WTI crude has now fallen nearly 15 per cent to $104 a barrel from $122 a barrel on June 8. In India, the spot price of crude oil (Mumbai) on MCX exchange has declined to ₹8,640/barrel from ₹9,452/barrel on June 10, a decline of 8.5 per cent. Similarly, the price of natural gas (Henry Hub) fell to $6.68 per million British thermal units (mmBtu) from its peak of $9.3 (June 6), a decrease of 29 percent currently. The spot price of MCX Natural Gas (Hajira) has increased by 26 per cent to ₹531/mmbtu from ₹724/mmbtu.

The fall in crude oil and gas prices, if sustained, will benefit the overall economy by reducing its energy import bill and saving the country’s foreign exchange reserves. The Indian rupee is going to a new low against the US dollar. Apart from saving for the government, the improvement in gas prices will also come as a big relief to the gas users.

India imports almost half of its gas requirement which is met through Liquefied Natural Gas (LNG). This in turn is re-gasified and sold to users as RLNG (re-gasified LNG). The balance is met through domestic production by exploration companies such as ONGC (accounts for more than 70 per cent of the domestic supply), Oil India Ltd and Reliance Industries Ltd.

Winners

While downstream refiners like Bharat Petroleum Corporation (BPCL), Hindustan Petroleum Corporation (HPCL), Indian Oil Corporation (IOCL) will benefit from higher demand due to fall in crude oil prices, there may be some inventory loss in the short term.

In the gas segment, the direct beneficiaries of the lower prices are distribution companies like Indraprastha Gas (IGL), Petronet LNG (PLNG), Gujarat Gas, which will see volume growth as gas prices continue to soften. Interestingly, the shares of IGL and PLNG have been rallying in the market this week with gains of 5.3 per cent and 6 per cent, while the broader markets are falling.

Consumers benefiting from falling gas prices are the fertilizer, power, metal and chemical industries. For fertilizer companies, gas is an important feedstock and phosphatic fertilizer manufacturers especially in listed locations such as Coromandel International, Paradip Phosphate, Gujarat State Fertilizers and Chemicals Limited (GSFC) and Gujarat Narmada Valley Fertilizers and Chemicals (GNFC) will benefit. some. However, the benefit of lower gas prices for urea manufacturing companies may be limited, given the government’s subsidy policy, wherein the input price is a pass-through for production up to their revaluation capacity. Production beyond the defined capacity under the policy will benefit from lower gas prices, as the recovery is linked to the import price of urea.

losers

Oil exploration companies such as ONGC, Reliance and Oil India may see a moderation in their revenue and profits if global and domestic crude prices continue to slide.

Published on

23 June 2022

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Who can be the winners and losers of falling gas prices?

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