Domestic natural gas price raised by 62%

Domestic natural gas price raised by 62%

October 1, 2021 Off By Sindy Thompson

The government on Thursday raised price of natural gas by 62 per cent. This gas is used to produce electricity. Also, it is used as fuel for producing fertilisers and as CNG (Compressed Natural Gas) to use as fuel in automobiles and cooking gas for household kitchens.

This is the first hike after April 2019. One reason is rise in international prices. This increase could lead to rise in CNG prices for automobile. Though fuel cost for gas-based power plants will also likely to go up, but since their share in overall power generation is low, so consumer will not be affected much.

New price

Petroleum Planning and Analysis Cell (PPAC), unit of Oil Ministry, said the rates paid for gas produced from fields given to Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) will be $2.90 per million British thermal unit (mmBtu). New price will be applicable the six-month period beginning April 1. Simultaneously, the price for gas produced from difficult fields such as deep sea, which is based on a different formula, was hiked to $6.13 per mmBtu from the $3.62 per mmBtu. This is the maximum price that Reliance Industries Ltd and its partner BP plc are entitled to for the gas they produce from deep sea blocks such as KG-D6.

Sabyasachi Majumdar, Senior Vice-president & Group Head (Corporate Sector Ratings) of ICRA, said the domestic gas price increase was driven by the significant run up in the prices of gas at global gas hubs.

“The increase in gas prices is provides limited relief to Indian upstream producers as even at these prices, gas production remains a loss-making proposition for most fields for the Indian upstream producers notwithstanding some decline in oil field services/equipment costs,” he said,

While the government sets the price of gas produced by ONGC from fields given to it on a nomination basis, it bi-annually announces a cap or maximum price that operators who won exploration acreage under licensing rounds can get.

Natural gas price is set every six months — on April 1 and October 1 — each year based on rates prevalent in surplus nations such as the US, Canada and Russia in one year with a lag of one quarter.

So, the price for October 1 to March 31 is based on the average price from July 2020 to June 2021. The gas price fixed in the last couple of years was un-remunerative for producers as it was way below the cost of production.

General cost

In a statement, research firm ICRA said that for the power sector, the notified increase in the domestic gas prices would lead to an increase in the variable cost of generation for the domestic gas-based power projects by about 40 per cent compared to the cost of generation at the earlier price.

For the fertiliser sector, nearly 34 per cent of the gas requirement of the fertiliser sector is met through domestic gas while the remaining is met through R-LNG imports. Moreover, the industry is supplied gas at pooled pricing, which takes into account the weighted average of the domestic and R-LNG prices. As per ICRA estimates, for every $1/mmbtu rise in the pooled price, the subsidy requirement for the urea sector rises by around ₹4,500-5,000 crore.