New Delhi : A gas price of over $ 6.5 per million British thermal unit is a prerequisite for early monetisation of discoveries made by Reliance Industries, Deutsche Bank said. A four-member panel of secretaries is likely to submit its report on a new gas pricing mechanism to the government by Wednesday. The committee was formed as the Rangarajan price formula, which would have doubled the gas price to USD 8.4, was found unacceptable to the government.
“Our channel checks indicate that a gas price over USD6.5 per mmBtu is necessary to enable monetisation of RIL’s deepwater discoveries,” Deutsche Bank Market Research said in a note.
It expected RIL to focus on development of R-series andsatellite gas discoveries in the eastern offshore KG-D6 block as well as coal-bed methane (CBM) block in Madhya Pradesh and
discoveries in NEC-25 block once clarity emerges on gas price. “Every USD1 per mmBtu hike in domestic natural gas price raises RIL’s FY16 EPS by 2 per cent,” it said. RIL stock has underperformed the BSE Sensex by 15 per cent over the past three months as the gas price hike was deferred and regional refining margins collapsed from over USD
6 per barrel in May to close to USD 3 in August.
Commissioning of expanded capacities in petrochemicals and refining will drive RIL’s earnings growth and valuations in FY16 and FY17.
