Natural gas price cut marginally to $2.48 mmBtu

Rate of natural gas produced from existing fields of ONGC and RIL has been cut to $2.48 per mmBtu for a six-month period from 1 April, from $2.5 per mmBtu currently


As per the new gas pricing formula approved by the NDA government in October 2014, gas prices are to be revised every six months. Photo: Mint
As per the new gas pricing formula approved by the NDA government in October 2014, gas prices are to be revised every six months. Photo: Mint

New Delhi: Natural gas price was on Saturday cut marginally to $2.48 per million British thermal unit (mmBtu), the fifth reduction in two years.

Rate of natural gas produced from existing fields of state-owned Oil and Natural Gas Corp. Ltd (ONGC) and Reliance Industries Ltd (RIL) has been cut to $2.48 per mmBtu for a six-month period from 1 April, from $2.5 per mmBtu currently.

As per the new gas pricing formula approved by the National Democratic Alliance (NDA) government in October 2014, gas prices are to be revised every six months. The reduction in natural gas prices would mean lower raw material cost for compressed natural gas (CNG) and piped natural gas (PNG), and that would translate into reduction in retail prices. It would also mean lower feedstock cost for power generation and manufacturing of fertilizers.

Rates were last cut by 18% with effect from 1 October, 2016. That had followed a 20% reduction to $3.06 last April. The price of gas between 1 October, 2015 and 31 March, 2016 was $3.81 per mmBtu and $4.66 in prior six-month period. “The price of domestic natural gas for the period 1 April, 2017 to 31 October, 2017 is $2.48 per mmBtu on gross calorific value (GCV) basis,” said a notification issued by the oil ministry’s petroleum planning & analysis cell (PPAC).

The reduction will hit producers like ONGC. Every dollar dip in gas price results in Rs4,000 crore hit in revenue of the public sector undertakings (PSUs) on an annual basis. Government however hiked the cap price based on alternate fuels for undeveloped gas finds in difficult areas like deep sea which are unviable to develop as per the existing pricing formula.

The cap for 1 April, 2017 to 31 October, 2017 will be $5.56 per mmBtu, up from $5.3 per mmBtu, PPAC notification said.

ONGC is the country’s biggest gas producer, accounting for some 60% of the 90 million standard cubic meters 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 April to October this year is based on average price at the international hubs during 1 January to 31 December, 2016.

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