10% hike in natural gas price: Bad for CNG, PNG users; good for Reliance Inudstries, ONGC, Oil India

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Updated: October 3, 2018 4:38:06 PM

The Narendra Modi government has hiked the natural gas price by 10% in its six-monthly revision to $3.36 per million British thermal unit (mmBtu) from $3.06 from October 1, which will lead to higher CNG and PNG rates.

The government revises natural gas price every six months based on the average rate in gas-surplus nations like Russia, the United States and Canada.The government revises natural gas price every six months based on the average rate in gas-surplus nations like Russia, the United States and Canada. (Image: PTI)

The Narendra Modi government has hiked the natural gas price by 10% in its six-monthly revision to $3.36 per million British thermal unit (mmBtu) from $3.06 from October 1, which will lead to higher CNG and PNG rates, while benefiting upstream oil and gas exploration companies like ONGC, Oil India and Reliance Industries, Care Ratings said in a report.

The 10% hike, however, is less than 14%-15% anticipated earlier. The government revises natural gas price every six months based on the average rate in gas-surplus nations like Russia, the United States and Canada. The revised gas price of $3.36 per mmBtu will be applicable till March 31, 2019.

“Upstream oil and gas exploration companies like ONGC, Oil India and Reliance Industries will benefit as higher gas prices will lead to higher earnings, due to improvement in per unit realisations in the natural gas segment, Care Ratings said in a report.

It added that higher earnings will help in encouraging these companies to take up more exploration activities aiding in the country’s aim of reducing oil and gas imports by 10% by 2022. Meanwhile, the rise in natural gas price will lead to higher CNG and PNG prices, along with the modest impact on inflation.

“A 9.8% increase in the prices of natural gas will increase the WPI directly by 0.05% which is not very significant,” the report added. Natural gas prices move in tandem with oil prices, which are on a rising streak. When the crude oil prices slumped below $60 a barrel between 2014-2017, the natural gas prices were cut too.

From April 2015 to September 2017, the natural gas price was cut constantly before a steep hike of 16.5% in October 2017. The current revision is the third straight hike in nearly three-and-a-half years. The new gas pricing formula was approved by the Modi government in October 2014.

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