Tariff For GAIL's KG Pipeline Fixed At Rs 8.4 Per MmBtu

The Petroleum & Natural Gas Regulatory Board has finalised a tariff of Rs 8.4 per metric million British thermal unit for GAIL (India) Ltd.'s newly integrated Krishna Godavari basin pipeline off the east coast.

The tariff implies the maximum price GAIL can charge for the natural gas transported through the KG pipeline.

It is 77% lower than the tariff of Rs 37.01 per mmBtu that was proposed by the gas distribution company earlier this year, according to a PNGRB's order dated Dec. 27.

The Rs 8.4/mmBtu tariff translates to a substantially lower gas price for consumers across various sectors like power generation, fertilisers, city gas distribution and even households using piped natural gas. The price set by the regulatory board makes gas cheaper for certain industries, especially those heavily reliant on gas for energy or feedstock.

If used in power generation, the cheaper gas can also bring down electricity tariffs for consumers. Depending on how gas distributors pass on the cost savings, city gas and piped natural gas could become more affordable for households as well.

Although customers will enjoy reduced prices, GAIL's revenue per unit of gas transported via the KG pipeline is expected to decline substantially.

This can be counterbalanced by the elevated gas volume. The reduced tariff may encourage producers to increase the gas flow through the pipeline, potentially resulting in higher overall revenue for GAIL despite the reduced per-unit price.

GAIL might also outpace competitors by providing more economical transportation, possibly attracting a larger clientele and strengthening its standing in the gas transportation sector.

Motilal Oswal Financial Services Ltd. maintains a 'buy' rating on GAIL at a target price of Rs 195, implying a potential upside of 24%.

Motilal forecasts the company's volume to have a compound annual growth rate of 9% over 2023–26. The volume growth would be fuelled by an increase in domestic gas output from Reliance Industries Ltd., Oil & Natural Gas Corpo. and Oil India.

The brokerage expects gas consumption in India to be aided by a notable rise in LNG regasification capacity over the next few years as five new LNG terminals ramp up operations.

"We expect a sizable new liquefaction capacity coming online during CY24–26, especially in the U.S. and Qatar, which should keep spot LNG prices in check," it said.

Motilal expects the transmission Ebitda to account for 46% of total Ebitda in financial year 2026 from 40% in the last fiscal, saying that it should improve the earnings stability.

Shares of GAIL were trading 3.37% higher at Rs 162.40 apiece on the NSE compared to 0.18% decline in the benchmark Nifty 50 as of 10.05 a.m.