New Delhi: India has reduced the domestic natural gas price to $2.39 per million British thermal units (mmBtu)—the lowest under the new domestic gas price regime, which was introduced in 2014.
Also, the ceiling price for gas from difficult fields such as deep water, ultra deep water and high pressure-high temperature areas was reduced to $5.61 per mmBtu from the earlier price of $8.43 per mmBtu.
The sharpest price decline till date will help reduce the cost of urea manufacturing, power generation and benefit compressed natural gas (CNG) and piped natural gas (PNG) consumers in the backdrop of global energy prices in a tailspin amid nationwide lockdowns to stop the coronavirus (Covid-19) pandemic. However, it will have an impact on the revenue and profits of gas producers.
The reduction has been aided by a steep fall in the prices of crude oil and gas. The price of crude oil, to which liquefied natural gas price is typically linked, has plunged. This comes at a time of global LNG prices plunging to less than $3 per million British thermal units (mmBtu) from a peak of $11.3/mmBtu in September 2018. India is the world’s third-largest oil importer and the fourth-largest buyer of liquefied natural gas (LNG).
The new price will be applicable from 1 April till 30 September and was notified by the Director General of Hydrocarbons Praveen M. Khanooja on Tuesday.
The price is on a gross calorific value (GCV) basis. Calorific value is heat value obtained from one volume unit of gas. While net calorific value (NCV) doesn’t take into account the latent heat of vaporization, GCV includes all the heat released by the fuel.
“Broadly 48% of natural gas is used as feedstock and the remaining 52% is used for fuel and power," Care Ratings wrote in a report on Tuesday.
Gas comprises about 6.2% of India’s primary energy mix, far behind the global average of 24%. The government plans to increase this share to 15% by 2030. India’s gas demand is expected to be driven by the fertilizer, power, city gas distribution, and steel sectors.
“Crude petroleum and natural gas has a 2.46% weight and in that natural gas has a 0.46% weight. A 26% decrease in the prices of natural gas will marginally impact the WPI directly given its low weight in the index," the report added.
While Indian refiners have slashed their production due to the transportation fuel demand shrinking with citizens cooped indoors, there has been an increase in the demand for domestic cooking gas against the backdrop of the three-week nationwide lockdown in the world’s largest such exercise aimed at stemming the spread of the virus.
In October 2014, the National Democratic Alliance government announced a new gas pricing formula using the weighted averages of prices in the three major international gas trading hubs of US Henry Hub, the UK National Balancing Point and Japan’s custom-cleared rate.