In the first ever reduction in domestic natural gas prices, the rates will be slashed by 9 per cent to USD 4.56 per unit from April 1 to reflect the softening in international prices, benefiting users in the power and fertiliser sectors.
The government had in October last year fixed natural gas price at USD 5.05 per million British thermal unit based on weighted average of international hub rates. This was on gross clarofic value (GCV) basis.
“The price of gas on GCV basis from April 1 will be USD 4.56 per mmBtu,” a top source said.
On net clarofic value (NCV) basis, the price would come to USD 5.01 per mmBtu as compared to USD 5.61 per mmBtu rate prevalent currently.
“The government does not fix or notify a rate. A formula was notified last year, based on which the price applicable from April 1 would be USD 4.56 per mmBtu on GCV basis,” said the source.
This will be the first reduction in price of natural gas ever in India. While it will impact the revenue producers like Oil and Natural Gas Corp and Reliance Industries, it will be a bonanza for users in the power and fertilizer sector.
As per mechanism approved in October 2014, price of domestically produced natural gas were to be revised every six month using weighted average price at Henry Hub of US, National Balancing Point of UK, rates in Alberta (Canada) and Russia with a lag of one quarter.
So, rate for April 1 to September 30 would be based on average price at the international hubs during January to December 2014.
The Oil Ministry is likely to announce the price for next six months “within next couple of day”, said the source.
When contacted, Oil Minister Dharmendra Pradhan refused to indicate the likely price but said, “if we are getting a cheaper price, its good for the economy”.
ONGC Chairman and Managing Director Dinesh K Sarraf said lower gas prices would deter the company from going ahead with investments in developing gas discoveries both off the east and the west coast.
“We have to take a long term view and I think these prices will certainly not be deterrent and we will continue to invest billions of dollars in gas development,” he said.
The current price of USD 5.61 per mmBtu is already among the lowest in Asia Pacific. China pays explorers USD 11.9 per mmBtu rate for new projects while Indonesia and the Philippines price the fuel at USD 11 and USD 10.5 respectively.
Gas from offshore fields in Myanmar, where Indian firms ONGC and GAIL have stake, are sold to China for USD 7.72. Thailand prices gas from new projects at USD 8.2 per mmBtu.
The only nations with lower rates are Vietnam (USD 5.2) and Malaysia (USD 5).
There was a drop in prices at international gas hubs in the second half – US Henry Hub dropped from USD 6 per mmBtu in February to USD 3.78 per mmBtu in October, and from USD 10.72 per mmBtu on NBP in January to USD 6.40.
The government had on October 17, 2014 approved a new formula that priced all domestic gas at weighted average of rates prevalent in gas-surplus economies of US/Mexico, Canada and Russia.
This will be the first reduction in natural gas in India. Domestic gas price was raised from USD 4.2 per mmBtu to USD 5.61 per mmBtu effective November 1.