High LNG prices passed on to customers

Vol 14, PW 3 (29 Jul 10) Midstream & Downstream

Watch out, gas prices in Gujarat are rising, as GSPC passes on the rising cost of imported LNG to customers, with its next price hike slated for (Sunday) August 1.

GSPC has raised prices steadily this year from Rs10.68 ($0.22)/per cubic metre in January to Rs11.79 ($0.24)/cm in July (see below). On August 1 customers are likely to see the price rise further to Rs12.29 ($0.26)/cm - GSPC’s eighth consecutive price-increase in as many months.

An analyst tells us GSPC has no option but to raise prices because of steadily rising short-term and spot LNG prices at Petronet-LNG’s Dahej terminal. Petronet-LNG promoter companies GAIL, IOC and Bharat Petroleum, he adds, raised their R-LNG selling prices from $5.51/mmbtu in June to $5.67/mmbtu in July.

“GSPC depends on R-LNG as it has no other major source of gas,” says Bechar Hoti, president of the Morbi Dhuwa Glazed Tiles Manufacturers Association. “But these monthly price fluctuations play havoc with our own pricing structure (for tiles).

” Hoti represents ceramics manufacturers in Morbi, a city in Gujarat's Rajkot district, once ruled by Rajput princes, and today the largest industrial customer base for GSPC subsidiary GSPC Gas. Over 300 tile factories in and around Morbi will be affected by these rising gas costs.

They aren’t the only ones who are unhappy. “If my product is not competitively priced I will be pushed out of the market,” complains the owner of a cloth processing factory in Ahmedabad.

“Energy costs account for 25% of my production cost so any rise in gas prices has a negative impact on my business.” Retail gas players Adani Gas, GSPC Gas, Sabarmati Gas and Charotar Gas depend solely on GSPC.

Other major GSPC customers include NTPC and Essar. GSPC currently sells a total 8.9m cm/d of gas in Gujarat out of which 3.25m cm/d is sourced from Dahej as R-LNG.

Month (2010) Gas Price/cubic metre January Rs10.68 February Rs10.76 March Rs10.98 April Rs11.06 May Rs11.29 June Rs11.46 July Rs11.79 August Rs12.34 (Expected)