Economy
What the gas price hike means for homes and businesses
Summary
The Petroleum Planning & Analysis Cell has set the price of domestic natural gas for May at $8.27 per metric million British thermal units. It was $7.92 in April. Mint explains its likely impactThe Petroleum Planning & Analysis Cell has set the price of domestic natural gas for May at $8.27 per metric million British thermal units. It was $7.92 in April. The revision follows the new domestic gas pricing formula introduced last month. Mint explains its likely impact.
Where does India source its gas from?
India imports around 55% of its natural gas requirement. Qatar, UAE, US, Russia and Australia are among the top suppliers of liquified natural gas (LNG) to India. India is also ramping up its own gas production. In FY22, India’s LNG production was 33,131.23 million metric standard cubic metres. About 83% of local LNG comes from state-run ONGC and OIL, from the ‘nomination’ regime, and the remaining from private/joint venture companies. Nomination blocks were allocated to the state-run exploration companies before 1999—before the current auction process began for allocating oil and gas blocks.
Why have domestic prices been increased?
The increase in the price of domestic natural gas has come on the back of the rise in crude oil prices in April. Under the new pricing norms, the price of domestic natural gas has been linked to crude oil prices and it is calculated at 10% of the monthly average of the Indian crude basket. The average price of the Indian crude basket rose to $83.76 from $78.54 per barrel in March. Oil prices rose last month after OPEC and its allies, including Russia, on 2 April announced a surprise output cut of 1.16 million barrels per day, taking the benchmark Brent crude above the $85 per-barrel-mark.
How will the decision impact consumers?
The move is unlikely to affect consumers directly as gas from nomination fields has been kept unchanged at the ceiling price of $6.5 per mmBtu—this ensures stable prices for consumers. Gas from nomination fields is primarily used for piped natural gas (PNG) for cooking purposes and compressed natural gas (CNG) for vehicles.
How will the decision affect industries?
Steel, petrochemicals, fertilizers and power may be impacted by the increase in prices. However, given that industrial consumption has only a small share of the domestic gas consumption basket, the increase in prices would have a limited impact on their input cost. CNG makes for the major share of domestic gas consumption. Steel and petrochemicals are among the non-priority sectors for supply of domestic gas, which means they would be supplied with gas only after requirements of the priority sectors are met.
What’s behind the new gas pricing norms?
The guidelines, approved by the Cabinet on 6 April, are expected to help in the expansion of natural gas consumption by lowering its price—making it more attractive than oil for industries. The Centre aims to increase the share of natural gas in the energy mix from the current 6.5% to 15% by 2030. The reforms are expected to lead to a significant drop in the price of PNG and CNG as it will be benchmarked at 10% of crude oil prices. And a ceiling price has been introduced on gas from nomination fields.
