The government on Friday hiked natural gas price by 16.5% to $2.89 per million British thermal unit, the first increase in nearly three years that will give relief to producers but raises rates of CNG.
Price of natural gas has been raised from $2.48 per MMBtu to $2.89 per MMBtu for six months beginning October 1, oil ministry’s Petroleum Planning and Analysis Cell (PPCA) said.
The rate hike, which will be applicable for gas produced from existing fields of state-owned Oil and Natural Gas Corp (ONGC) and Reliance Industries, comes after five rounds of reduction, the last being on April 1.
As per the new gas pricing formula approved by the NDA- government in October 2014, gas prices are to be revised every six months.
The increase in natural gas prices would mean higher raw material cost for compressed natural gas (CNG) and natural gas piped to households (PNG). It would also mean higher feedstock cost for power generation and manufacturing of fertilisers and petrochemicals.
Rates were last cut marginally to $2.48 per MMBtu effective April 1 from $2.5 per MMBtu previously. Prior to that prices were cut by 18% with effect from October 1, 2016. That had followed a 20% reduction to $3.06 last April. The price of gas between October 1, 2015 and March 31, 2016 was $3.81 per mmBtu and $4.66 in prior six month period.
The hike will boost producers like ONGC. Every dollar increase in gas price results in Rs 4,000 crore additional revenue for the PSU on an annual basis.
The government also hiked the cap price based on alternate fuels for undeveloped gas finds in difficult areas like deepsea which are unviable to develop as per the existing pricing formula.
The cap for October 1, 2017 to March 31, 2017 will be $6.3 per MMBtu, up from $5.56, PPAC said.
ONGC is the country’s biggest gas producer, accounting for some 60% of the 90 million standard cubic metres per day current output.
All of its gas as well as that of Oil India Ltd and private sector RIL’s KG-D6 block are sold at the formula approved in October 2014. This formula however does not cover gas from fields like Panna/Mukta and Tapti in western offshore and Ravva in Bay of Bengal.
The government had in October 2014 announced a new pricing formula that calculated local rates by using prevailing price in gas surplus nations like the US, Russia and Canada.
As per the mechanism approved in October, 2014, the price of domestically produced natural gas is to be revised every six months using weighted average or rates prevalent in gas- surplus economies of US/Mexico, Canada and Russia.
Indian gas prices are calculated by taking weighted average price at Henry Hub of the US, National Balancing Point of the UK, rates in Alberta (Canada) and Russia with a lag of one quarter.
So, the rate for October 2017 to March 2016 is based on average price at the international hubs during July 1, 2015 to June 30, 2017.