India hikes natural gas price for first time in 3 years; CNG, PNG bills set to rise?

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Published: September 29, 2017 5:08:21 PM

India has raised the price of natural gas to $2.89 per mmBtu for October-March 2017-18, making it the first hike in three years after seven straight cuts.

The government has also sharply raised the cap on premium price to .3 per mmBtu from .56 per mmBtu for the natural gas produced from difficult fields. (Image: Reuters)

India has raised the price of natural gas to $2.89 per mmBtu for October-March 2017-18, making it the first hike in three years after seven straight cuts in the price of 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. Earlier, the price of the natural gas produced at the domestic fields in the preceding six-month period to September was cut to $2.48 per million metric British thermal units, defying the expectations of a higher price.

The government has also sharply raised the cap on premium price to $6.3 per mmBtu from $5.56 per mmBtu for the natural gas produced from difficult fields, it said in a notification. The rise is ostensibly in line with the rising benchmark reference rates in major global markets.

The formula

Domestic natural gas producers had been seeking revision in the formula for fixing gas price, with a fixed floor price for their produce in order to get some relief from selling natural gas at below cost due to the government set prices.

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. With the exception of the latest hike, natural gas price continuously fell in India since the application of the new formula, and had reduced to less than half of the $5.05 per mmBtu fixed in October 2014.

Monthly fuel bill

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 a 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 marginally hiked during the last revision for April-September 2017-18 to $5.56 mmBtu from $5.3 per mmBtu in the preceding half.

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