Massive 15% natural gas price hike on anvil; households’ kitchen, auto fuel budget may take a hit

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Updated: August 30, 2018 12:11:47 PM

A natural gas price hike to the tune of a massive 15% may be on the cards,as the government has reportedly decided to raise the price of domestically produced natural gas to $3.50 for the next 6-month period.

The 15% rise is indeed massive, and the the increase in prices of natural gas has a strong likelihood of it leading to rise in prices of PNG.

A natural gas price hike to the tune of a massive 15% may be on the cards, as the government has decided to raise the price of domestically produced natural gas to $3.50 per million metric British thermal units for the next six-month period, CNBC Awaaz reported citing sources. This could raise domestic cooking gas for households and CNG bills for automobile users. Earlier this year, the government raised domestic natural gas price by 6% to $3.06 per million metric British thermal units, applicable for the current six-month period Apr-Sep 2018. The revised prices are based on the government’s formula and calculated on gross calorific value basis.

The 15% rise is indeed massive, and the the increase in prices of natural gas has 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.

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 latest potential hike in natural gas prices is also seen to boost the profits of oil marketing companies ONGC and Oil India. According to a recent Jefferies report, though the contribution of gas business is less on the revenue and operational front, a $1 per mmBtu rise can lift the earnings per share of ONGC and Oil India by at least 10%.

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