Gas price cut is credit negative for Indian energy companies: Moody's

Posted By: Religare
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Moody's Investors Service, a global rating agency, on Monday said the sharp cut in natural gas prices by the government of India is credit negative for the upstream players, affecting new exploration investments and fuel imports by state-run companies.

"The gas price reduction is credit negative for upstream producers ONGC and Oil India because it will lower their revenues and cash flows, which are already declining from low oil prices," Moody's said in a report.

The agency said the gas price reduction will have its greatest effect, in absolute terms, on ONGC, the country's largest producer of natural gas, adding that it expected ONGC's revenues to decline by around USD 300 million and for Oil India Ltd by around USD 33 million.

"India relies on natural gas imports to meet its energy needs. Imports accounted for 36 per cent of the total natural gas consumption in India for fiscal 2015 and 39 per cent for the five months between April 1 and August 30, 2015," Moody's said.

The rating firm further said that imports will continue to increase as low international gas prices stimulate demand for natural gas and low domestic prices discourage further investments by upstream players to explore and develop new gas reserves.

"When oil prices are low, upstream players cannot economically produce from difficult terrains such as deep water, where costs are substantially higher," it added.

Story first published: Monday, October 5, 2015, 12:30 [IST]
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