Cabinet may consider next week natural gas price hike

According to sources the price as per the formula in the current quarter comes to $6.775 per million British thermal unit

The Cabinet may consider next week across-the-board hike in natural gas prices after key finance and fertiliser ministries have endorsed Oil Ministry proposal for a 60% increase in rates immediately.

The ministries of Finance, Power and Fertiliser have sent their comments on a revised note floated by Oil Ministry for pricing natural gas, as per the formula suggested by Prime Minister's economic advisor C Rangarajan-headed panel.

The panel had suggested pricing domestic gas at an average of rates at three key international hubs - US Henry Hub, National Balancing Point of UK and well-head prices of supplies into Japan, and the actual cost at which India imports liquid gas (LNG).

Sources said the price as per the formula in the current quarter comes to $6.775 per million British thermal unit as against the current rate of $4.2 per mmBtu.

Ministry of Finance wanted some changes in the pricing methodology by excluding international hub rates and pricing domestic gas at rate equivalent at the actual cost of LNG to India on a long-term contract.

The gas price, if the Finance Ministry's suggestion are accepted, would come to $6.79 in the immediate future and $8.93 by the end of current fiscal. It would rise to $10.29 in 2014-15 and $10.92 in the subsequent year.

Price of gas as per Oil Ministry proposal formula would be close to $12 in 2014-15 and $14 in the next year.

The power ministry, sources said, pitched for a gas price of no more than $5 and no change in rates of gas produced by state-owned firms like ONGC, called APM gas.

Oil Ministry has rejected the suggestion of no change in APM price saying producers need to be incentivised to raise output.

The Fertiliser Ministry was largely in agreement with the proposal for revising rates every quarter, sources added.

Oil Ministry has proposed raising gas price for state-run firms immediately and that for Reliance Industries from April 2014 when it is contractually due.

The hike in natural gas price by $1 would result in Rs 3,155 crore per annum hit on fertiliser plants for producing 23 million tonnes of urea this fiscal and Rs 4,144 crore a year for 32 million tonnes of urea production from 2017-18, sources added.

The impact of every dollar hike in gas price would be about Rs 10,040 crore per annum on the power sector.