New Delhi: According to the rating agency ICRA, the domestic natural gas price notified at USD1.79 per unit for the first half of 2021-22, the lowest since the institution of the modified Rangarajan formula, is unfavourable for domestic oil and gas producers and will significantly impact their financial performance.

Low natural gas prices have adversely impacted upstream producers' revenues, profitability and cash accruals, ratings agency ICRA said. It also cited that low prices may be unfavourable for domestic producers, it will benefit gas consumers, adding that consumers will benefit in the long run from the expectations of a continued supply overhang.

As per an ICRA note, at such low gas prices, gas production remains a loss-making proposition for most fields for the Indian upstream producers notwithstanding some decline in oil field services or equipment costs. However, the depreciation of 'Indian Rupee (INR) against USD', would aid in the realisations of the gas producers but only to an extent.

"Going forward, the supply glut is expected to keep prices of domestic gas low in the near to medium term leading to poor returns even as domestic gas producers such as ONGC and RIL-BP ramp up gas production significantly," said Sabyasachi Majumdar, Senior Vice-President & Group Head, Corporate Sector Ratings, ICRA.

Also, the ceiling on price for gas produced from deep water, ultra-deepwater, high temperature and high-pressure fields has also been announced at USD3.62 per unit for the period between April and September 2021, 10.8 per cent lower than the price ceiling of USD4.06 per unit for the period between October 2020 and March 2021. This would dampen the development of such projects.

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