Weakening Rupee hits gas retailers in the pocket

Vol 15, PW 11 (01 Dec 11) People & Policy

Panic is spreading among city gas retail companies as the Indian rupee continues its inexorable slide, hitting a low of Rs52.73 against the dollar on November 23.

Among the hardest hit are Gujarat-based companies without ‘APM’ or subsidised domestic gas allocations that depend on expensive LNG imports. “Just imagine our situation,” complains a source at BG-owned Gujarat Gas.

“We are buying gas in dollars but selling it in rupees.” Gujarat Gas - where a 65% stake is up for sale by BG who wants to exit - is particularly concerned as its dependence on R-LNG grows.

In the south Gujarat cities of Surat, Bharuch and Ankleshwar it sells about 3.5m cm/d as piped gas to over 900 factories; 6000 hotels, restaurants and other small businesses; as well as 323,000 households. It also sells some of this gas as CNG for cars and buses.

Gujarat Gas sources a worrisome 38% of its supplies, as R-LNG while gas from the Panna, Mukta and Tapti (PMT) fields offshore Mumbai, supplied by GAIL, is down to just 37% of its ‘supply basket.’ APM gas accounts for 5% while Cairn supplies 15% and Niko Resources supplies 5%.

Gujarat Gas must also pay in dollars for the domestic gas it receives, like 1.29m cm/d of PMT gas at $5.73/mmbtu. Gas from Niko’s south Gujarat fields costs $4.61/mmbtu while Cairn sells its gas at $4.75/mmbtu.

“Only for APM gas do we pay in Indian rupees at Rs6818/m cubic metre ($129.8).” For comparison this works out to about $3.82/mmbtu.

Gujarat Gas complains the falling rupee is hitting both its gas costs and profit margins. Another industry source adds retail gas players are being squeezed on two fronts: rising LNG prices and poor foreign exchange rates.