Domestic natural gas prices seen rising to $3.15/mBtu in October

By: |
September 10, 2021 3:15 AM

The ONGC management said in June that the company expected nearly 50- 60% increase in gas prices in the second half of the fiscal with international rates strengthening.

Domestic gas price is linked to the weighted average price of four global benchmarks (US, UK, Canada and Russia).Domestic gas price is linked to the weighted average price of four global benchmarks (US, UK, Canada and Russia).

On the back of rising global crude oil and natural gas rates, analysts expect the price of domestic gas to increase to $3.15/million British thermal units (mBtu) for the October-March period.

In September 2020, the Centre had slashed domestic gas price to an all-time low rate of $1.79/ mBtu and had kept the rate unchanged for the April-October 2021 period. The price is much below the breakeven point of $3.2-3.5/mbtu for most domestic gas fields, and has impacted the realisations of domestic producers like the state-run Oil and Natural Gas Corporation (ONGC) and Oil India. Domestic gas price is linked to the weighted average price of four global benchmarks (US, UK, Canada and Russia).

Analysts at ICICI Securities estimate that the domestic gas price ceiling fixed by the government will increase to $5.93/mBtu for April-September 2022 and $7.65/mBtu for the subsequent six months. Asia’s spot liquefied natural gas prices have soared to multi-year summer highs owing to strong regional demand and Henry Hub prices have risen to around $4.2/mBtu levels in August from about $2.4/mBtu in April owing to strong exports and heat wave in the US. “Domestic gas prices are expected to almost double in the next revision owing to increase in prices at various international hubs,” analysts at Icra recently said.

The ONGC management said in June that the company expected nearly 50- 60% increase in gas prices in the second half of the fiscal with international rates strengthening.

Domestic natural gas production increased 18.4% to 2,892 million standard cubic metre (mscm) in July on a year-on-year (y-o-y) basis, mainly due to higher production from Reliance Industries and BP’s ultra-deep-water field in the KG-D6 Block of the Krishna Godavari basin on the east coast. The output had fallen 8.1% y-o-y to 28,670.6 mscm in FY21. For ultra-deep-water gas fields like the Krishna Godavari basin, which have higher pricing and marketing freedom, the current price cap is set at $3.62/mBtu.

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