Govt might cut natural gas price by up to 17%

The new price would dent the earnings of state-run explorers, including ONGC, and the government's earnings from the royalty on production

The petroleum ministry might cut domestic natural gas prices by as much as 17 per cent, to $3.15 per million British thermal units (mBtu) on a gross calorific value (GCV) basis for the six months beginning April 1, from the current $3.82 an mBtu.

The Petroleum Planning and Analysis Cell of the petroleum ministry is likely to make a notification of the new price on Thursday, aligning rates with the decline in global prices. “Based on the movement of benchmarks considered in the new pricing formula, the new one would be very close to $3.15 a unit,” said a senior ministry official.

The new price would dent the earnings of state-run explorers, including Oil and Natural gas Corporation (ONGC), and the government’s earnings from the royalty on production. On a net calorific value (NCV) basis, the price is seen dipping to $3.5 a unit.

The new price would not impact Reliance Industries'; what it is allowed to charge from its gas reservoirs in the eastern offshore KG-D6 block is capped at $4.2 a mBtu, pending a resolution of the arbitration over cost recovery on account of shortfall in production from its D1 and D3 discoveries. The difference between the two price rates is being credited to a pooled account.

The new price would not be applicable to all coal bed methane blocks. The 2014 price notification had stated the new guidelines would not apply where prices were fixed contractually for a specified period.  

 

The government had announced the new formula in October 2014, based on the average price in gas surplus nations (including America, Russia and Canada). It pushed up prices for the period between November 2014 and March 2015 by 33 per cent to $5.61 a unit from the then $4.2 a unit on an NCV basis. On a GCV basis, these went up from $3.79 to $5.05 a unit.

Then, the government had cut prices seven per cent, to $4.66 a unit on GCV for the six months between April and September 2015. Prices were further cut by 18 per cent to Rs 3.82 a mBtu for the period between October 1, 2015, and March 31, 2016, on a GCV basis.

The new lower price, to be effective from next month and calculated on the average of global prices between January 2015 and December 2015, would bring down fuel costs for gas-based power stations and fertiliser making units, apart from bringing down the cost of compressed and piped natural gas for consumers.