1. First natural gas price hike since October 2014 due in April; will your cooking gas, CNG bill rise?

First natural gas price hike since October 2014 due in April; will your cooking gas, CNG bill rise?

Domestic natural gas price will rise for the first time in two-and-a-half years in line with the rising benchmark reference rates in major global markets, after continuously falling to less than half since October 2014.

By: | Published: February 20, 2017 2:45 PM
gas distributors, gas price cut, bse sensex, nse nifty Natural gas price has continuously fallen in India since the application of the new formula, and has reduced to less than half of the .05 per mmBtu fixed in October 2014. (Image: Reuters)

India will likely raise domestic natural gas price in April for the first time in two-and-a-half years in line with the rising benchmark reference rates in major global markets, wire news reports said. Subsequently, the price will likely be further increased in October, with a strong likelihood of leading to rise in prices of PNG (piped domestic cooking gas) and CNG (auto fuel).

Natural gas producers in the country will likely increase the price by 8% to $2.7 per mmBtu (million British thermal units) for the first half (Apr-Sep) of the next financial year 2017-18 from $2.5 per mmBtu now, and may increase it further by a steep 14.8% to $3.1 per mmBtu for the second half (Oct-Mar 2017-18), according to the report, which cited unidentified industry sources.

The government had approved a new formula in October 2014 to set the price of the natural gas produced at the domestic fields and revise it every six months based on the movement in prices in the US (Henry Hub), the UK (National Balancing Point), Canada (Alberta) and Russia. The producers revise the price with a lag of one quarter. Thus, the Apr-Sep 2017-18 prices will be revised in accordance with the reference rates during Jan-Dec 2016.

Natural gas price has continuously fallen in India since the application of the new formula, and has reduced to less than half of the $5.05 per mmBtu fixed in October 2014 (see chart).

nat-gas-price-since-oct-14

The price applies to the gas produced at the domestic fields including the KG-D6 field of Reliance Industries, and the fields of Oil and Natural Gas Corp and Oil India Ltd.

While the increase in the gas price will provide some relief to the domestic producers, who have selling it at below cost, it will put pressure on margins of the retail fuel distributors, fertiliser makers and power producers, which use natural gas as feedstock.

Fertiliser and power companies also import LNG (liquefied natural gas) in addition to buying the domestic gas, and pool the prices to calculate their overall costs. This may provide some cushion to their margins, as they would look to increase the mix of imported LNG, depending on its prices in the international open markets.

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The government may also raise the cap on the price of natural gas produced from difficult fields to $5.7 per mmBtu from $5.3 per mmBtu now. The gas producers are allowed to charge market-based prices within the specified cap for the gas produced at deep offshore fields or high-pressure high-temperature fields, which became operational January 2016 onwards. The cap on this price was sharply lowered during the last revision for Oct-Mar 2016-17 to $5.3 mmBtu from $6.61 per mmBtu in the preceding half.

 

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