This is Guest post contributed by Rose Jensen, who writes about the online colleges. She welcomes your feedback at Rose.Jensen28 @ yahoo.com
The energy situation in India saw some significant announcements recently. The country is expecting to raise its natural gas price by 44 percent to curb the losses suffered by Oil & Natural Gas Corp., India’s biggest energy producer, according to The Wall Street Journal. The price will be raised from about 88 rupees per million British thermal unit to about 127 rupees per mmBtu to make up for the revenue losses caused by selling the gas at below its actual cost. That means consumers of natural gas, from individuals to businesses, should expect to pay more for their gas soon if the proposition passes. The petroleum industry hopes that the price hike will stabilize ONGC and Oil India, the nation’s second-largest state-run energy explorer.
Both companies sell fuel at prices controlled by the government in an effort to control inflation rates. In fact, 77 percent of the gas sold in India is sold under government-mandated prices. However, this precautionary practice damaged the company’s finances, as the fuel was sold at a much lower price than it cost to obtain and process it. As a result, ONGC may have already lost up to 30 billion rupees this year alone, according to the finance site Bloomberg.com. The company produced about 60 percent of India’s gas output in the last year, and sells about 56 million cubic meters of gas a day. India’s demand for natural gas increased by 35.5 percent since last year, making it easy to fathom that selling the precious energy source at below cost was costing ONGC and Oil India a significant amount of money.
Interestingly, ONGC sharesrecently increased 3.3 percent, the most since August when shares leapt up 5 percent. Most stock analysts recommend holding rather than selling at this point.
Smaller company Oil India Ltd. is also experiencing a boom in the energy business. It recently announced that it is considering investing about 245 billion rupees with its partners to develop a natural gas field in Iran, Bloomberg.com reported. Oil India is currently negotiating a contract for the costly investment, aware that it must get a service contract with a fixed rate of return for the investment to be profitable. It will be working as part of a three-partner joint venture, alongside ONGC Videsh Ltd, which handles ONGC’s overseas investments, and Indian Oil Corp. The field, located off of the Farsi offshore block in the eastern portion of the Persian Gulf, was named the “Farzad-B gas field” and can yield up to 21.68 trillion cubic feet of gas, out of which 12.8 trillion cubic feet can be processed.
Energy concerns continue to dominate the political and financial spheres. A weak monsoon season has rural and weather-dependent industries, like hydropower, concerned, which is reflected in its sagging shares. ONGC and Oil India, although largely unaffected by seasonal changes, have also felt the sting of an uncertain market, although things are looking up now. Both companies saw a rise in shares within the last month.
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That’s a true area of concern! The economy and the roaring prices are becoming very unpredictable.