1. Natural gas price may rise to $2.6-2.8 per unit; producers seek setting floor

Natural gas price may rise to $2.6-2.8 per unit; producers seek setting floor

This will be the first rise in two-and-a-half years in the prices of natural 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.

By: | Published: March 28, 2017 2:48 PM
The impending rise in the price of the domestically produced natural gas is in line with the rising benchmark reference rates in major global markets.

The government will likely raise domestic natural gas price to $2.6-2.8 per mmBtu from $2.5 per mmBtu now, CNBC TV18 said citing a wire report which quoted unidentified sources. This will be the first rise in two-and-a-half years in the prices of natural 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.

The government will also likely raise the cap on premium price to $5.8 per mmBtu from $5.3 per mmBtu for the natural gas produced from difficult fields, CNBC TV18 report said. The impending rise is in line with the rising benchmark reference rates in major global markets.

Formula

Reportedly, the natural gas producers have sought revision in the formula for fixing gas price, with a fixed floor price for their produce. Ostensibly, this will provide some relief to the domestic producers, who have been selling natural gas at below cost due to the government set prices.

You may also like to watch:

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.

Cost pressure

Further, the price may be increased again in October to $3.1 per mmBtu, with a strong likelihood of it leading to rise in prices of PNG (piped domestic cooking gas) and CNG (auto fuel), as 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.

As for the premium price, 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.

  1. No Comments.

Go to Top