Natural gas price may be hiked by 14% from October

New Delhi: The government is likely to raise the price of domestic natural gas by over 14% from October, a move likely to translate into higher CNG price and increased cost of electricity and urea production.

Price paid to most domestic producers of natural gas is likely to be hiked to $3.5 per million British thermal unit (mmBtu) from October 1, from the current $3.06, according to sources privy to the development.

Natural gas prices are set every six months based on average rates in gas-surplus nations such as the US, Russia and Canada. Sources said the price revision was likely to be announced on September 28. India imports half of its gas, at almost more than double the domestic rate. The rate of $3.50 per mmBtu rate would be for six months beginning October 1, and will be the highest since October 2015 to March 2016 when $3.82 per mmBtu price was paid to domestic producers.

The increase in price will boost earnings of producers such as Oil and Natural Gas Corp (ONGC) and Reliance Industries, but will also lead to a rise in the price of CNG, which uses natural gas as an input. It would also lead to higher cost of urea and power production.

Gas price was last hiked to $3.06 per mmBtu for April-September 2018 from $2.89 in the previous six months. This was just the second hike in nearly three years. The government was also likely to hike the cap price based on alternate fuels for undeveloped gas finds in difficult areas, including the deepsea, unviable for development according to the existing pricing formula, sources said. The price for such fields is likely to be around $7 per mmBtu for six month beginning October 1, against the current $6.78, they added.

According to the new gas pricing formula approved by the NDA government in October 2014, gas prices were to be revised every six months. The increase in natural gas prices will mean higher raw material cost for CNG and natural gas piped to households (PNG). It would also mean higher feedstock cost for power generation and manufacturing of fertilisers and petrochemicals. The hike will boost producers such as ONGC. Every dollar increase in gas price results in an additional revenue of Rs 4,000 crore for the PSU on an annual basis, sources said. ONGC is the country’s biggest gas producer, accounting for two-thirds of the current output of over 70 million standard cubic meters per day. All of its gas, as well as that of Oil India and private sector RIL’s KG-D6 block, are sold at the formula approved in October 2014. The formula, however, does not cover gas from fields such as Panna/Mukta and Tapti in western offshore and Ravva in Bay of Bengal.

Indian gas prices are calculated by taking the weighted average price at Henry Hub of the US, National Balancing Point of the UK and rates in Alberta (Canada) and Russia with a lag of one quarter. So, the rate for October 2018 to March 2019 is based on the average price at international hubs during April 2017 to March 2018.