A depreciation in prices of liquified natural gas has made it difficult for the nation’s largest gas distributor to sell the commodity at a profit in the domestic market.
GAIL India Ltd. buys LNG at contracted prices in the international market and sells at prevailing rates in the domestic market—a business that generates 70-75 percent of its revenue. But while selling prices have tumbled, buying prices remain high.
For GAIL, the contracted price is 115 percent of the Henry Hub prices—the U.S. benchmark—along with $3 per mmBtu of fixed fees and transportation charges of $1.5-2 per mmBtu. GAIL, however, has the option to mitigate this risk by either hedging or swapping or selling these contracts.
Shares of GAIL have gone down nearly by 4 percent in the last six months as the pricing differential impacted its business. That compares with the near 10 percent gain in the benchmark NSE Nifty 50 Index.
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