The stock of GAIL Limited had been on the top gainers’ list for two consecutive days. From December 1st, its share price has jumped more than 12% and has closed at Rs 118.25 on December 3. A very similar surge was also seen in ONGC’s stock price.  It was mentioned that we will be bringing you a detailed analysis as to why such a rally has occurred. marketfeed always delivers on its promises. So, let us dive deep into the specific details regarding this particular stock. 

What Led to a Surge in GAIL and ONGC share price?

The reason for the rally is very interesting and it can be traced back to a PNGRB update that came out on 27 November 2020. The Petroleum and Natural Gas Regulatory Board (PNGRB) is a statutory body of the Indian government. The main aim of this board is to protect the interests of consumers and entities that are engaged in specified activities related to petroleum, petroleum products, and natural gas. They also have the power to regulate the refining, processing, storing, transportation, distribution, and sale of important resources mentioned above.

PNGRB, on 27 November, released a notification regarding a unified tariff structure for over a dozen pipelines that form the National Gas Grid. Currently, the tariff for natural gas is levied in proportion to the distance between the source and the consumers. The longer the distance, the higher will be the charges. The consumers who are away from the coast had to pay a very high charge.

The regulator has now notified a two-zone tariff structure: Zone-I will be 300-km from the source of gas (gas field or LNG import terminal) and Zone-II will be beyond that. This would lead to a 20-30% rise in transportation charges paid by users near the source (Zone-I). There will be a reduction in charges for consumers that are away from the source and will make it more affordable for them. Another major objective of this plan is to attract more investments for improving the gas infrastructure in India. 

GAIL has a network of seven pipelines in the National Gas Grid. And, the major highlight is that most of them fall under Zone-I. The pipelines that will be part of the unified tariff plan include GAIL India’s Hazira-Vijaipur-Jagdishpur (HVJ) and its supplementary Dahej-Vijaipur line. It also includes the Dahej (in Gujarat) to Uran-Dabhol-Panvel (in Maharashtra) pipeline. Many industries and consumer entities that fall closer to such a source of pipelines will have to pay a higher tariff. 

The pipelines of other companies such as the Oil and Natural Gas Corporation Ltd (ONGC), Gujarat State Petroleum Corporation (GSPL), Indian Oil Corporation (IOC), are included in the latest unified tariff structure. Reliance Industries’ subsidiary which operates pipelines in Madhya Pradesh and Uttar Pradesh are also included in PNGRB’s plan. Unified tariffs will encourage gas transmission companies to set up new pipelines and will result in long term volume growth. This has led to positive sentiments surrounding the stock of GAIL and ONGC. 

Graph showing the surge in GAIL’s stock price since December 1, 2020

You can check out the similar surge in ONGC’s share price, as well.

Conclusion

This particular rally of GAIL’s share price was something that we had been wondering about for the past 2 days. Such stock-specific movements are sometimes difficult to understand and comprehend. We were also able to see ONGC up on the top gainers’ list multiple times. And now, we have finally gotten an answer. However, do bear in mind that this could only be a part of the surge in its shares. There could always be a multitude of other factors that affect the stock prices of a company.

The new tariff structure is part of the government’s plan to raise the share of gas in India’s energy mix to 15% from the current level of about 6.3%. Thus, we will be able to cut down India’s carbon footprint by 2030. This is a wonderful initiative to ensure that our future economic growth is secure. Always remember to follow such specific news. At the same time, ensure that you understand how it could affect the stock prices.

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