Domestic gas producers face 18% price reduction

New price of $3.82 applicable till March next

The government on Wednesday announced an 18 per cent reduction in the price of domestic natural gas to $3.82 per unit from $4.66 a unit, in line with the decline in the global gas prices. The new price, to be effective for six months beginning October 1, will dent the earnings of state-run explorers Oil and Natural Gas Corporation (ONGC) and the government’s earnings from royalty on production.

“The price of domestic natural gas for the period from October 1 to March 31, 2016, will be $3.82 per million British thermal units (mBtu) on a gross calorific value (GCV) basis, in accordance with the New Domestic Natural Gas Pricing Guidelines of 2014,” Petroleum Planning & Analysis Cell (PPAC), the oil ministry’s technical arm, said in a notification.

On a net calorific value (NCV) basis, the price is seen dipping to $4.24 an mBtu from $5.18 an mBtu currently. “The change in the gas price is estimated to hit our profit by around Rs 1,059 crore,” said a senior executive at the largest producer ONGC. The firm had reported a net profit of Rs 17,732 crore for 2014-15, a 20 per cent drop from a year earlier.

The new price will not impact Reliance Industries Ltd (RIL) as the price the company is allowed to charge from its gas reservoirs in the Eastern offshore KG-D6 block is capped at $4.2 an mBtu, pending the resolution of an arbitration over cost recovery on account of a shortfall in production from the D1 and D3 discoveries. The difference between the two prices is currently credited to a gas pool account.

The new price will not be applicable to all coal-bed methane (CBM) blocks. The 2014 gas price notification had said the new pricing guidelines will not be applicable where prices have been fixed contractually for a certain period.

So, the new price will not apply to production from the CBM blocks of Great Eastern Energy Company (GEECL), according to the company, as its prices have been fixed contractually. GEECL, along with Essar Oil, accounts for all of India’s CBM production of around 1.1 million standard cubic metres a day. The new gas price, though, will apply to Essar Oil’s CBM production. “We are compliant with the government’s regulation,” an Essar Oil spokesperson said.

The government had announced the new pricing formula in October 2014 that was based on the average price in gas surplus nations including the US, Russia and Canada and pushed up prices for five month period between November 2014 and March 2015 by 33 per cent to $5.61 per unit from the then prevailing rate of $4.2 per unit on NCV basis. On GCV basis, prices went up from $3.79 per unit to $5.05 per unit. The government had cut the prices 7 per cent to $4.66 per unit on GCV basis for six months between April and September.

 

The lower price would bring down fuel costs for gas-based power stations and fertilizer manufacturing units apart from bringing down cost of Compressed Natural Gas and Piped Natural Gas (PNG) for consumers. The benchmark indices of Henry Hub in the US, National Balancing Point in the UK, Canada's Alberta Hub and Russia's gas prices have declined between July 2014 and June 2015. The new gas price is the average of the four global prices in this 12-month period.