The price of domestic natural gas were cut on Tuesday by a massive 20 percent to $3.06 per million British thermal unit (mbtu), a petroleum ministry official said here on Thursday.
The new price will be effective from Friday as per the new gas pricing formula approved by the government in October 2014 by which gas prices are revised every six months.
This is the third consecutive and steepest gas price reduction since the implementation of the domestic gas pricing formula, on the back of a decline in average gas prices at the international reference hubs over period January 2015-December 2015.
It will apply to gas produced from existing fields of state-run explorer ONGC and Mukesh Ambani-led Reliance Industries Ltd. (RIL).
The price of natural gas was last lowered to $3.82 per mmBtu on gross calorific value (GCV) from $4.66 on October 1, 2015. On a net-calorific value (NCV) basis, the gas price will be $3.4 per mBtu as compared to $4.24 currently.
The move will benefit fertiliser, power and steel companies who heavily rely on natural gas, as well as translate to lower retail prices for compressed natural gas (CNG) and piped natural gas (PNG) to households.
The government also announced the ceiling price based on alternate fuels for undeveloped gas finds in difficult areas that are unviable to develop as per the existing pricing formula.
The price cap for April 1 to September 30 will be $6.61 per mmBtu on GCV basis and $7.3 on NCV basis, the official said.
The government last month pronounced on the long-pending issue of higher premium for gas production from deep water, ultra-deep water as well as high-temperature and high-pressure fields, saying exploration in these difficult areas will be incentivised by giving producers calibrated marketing freedom to discover a pre-determined rate.
India Inc has been calling for a decision on the matter for over a year now.
While approving a new gas pricing formula in October 2014, the government had decided that new gas discoveries in difficult areas will be given a premium over and above the approved price.
While shallow water blocks are at a depth of up to 100-500 metres, deep water blocks descend to around 1,000 metres. Those at depths beyond 1,500 metres are classified as ultra-deep-water blocks.
These are the areas where the Reliance Industries-led consortium has the maximum discoveries on the eastern offshore.
The price cut should result in a reduction of Rs.0.5 to Rs 1.5 per standard cubic metre in price of piped natural gas (PNG) for domestic customers and Rs.0.8-1.5 per kg cut in CNG prices, India Ratings and Research (Ind-Ra) said in a report on Thursday.
It said lower prices will directly impact the revenues of domestic gas producers by Rs.3000-3,200 crore during the first half of 2016-17.
ONGC and Oil India which contribute approximately 75 per cent of total domestic gas production will bear the maximum revenue loss.
"The revised pricing will pose viability challenges for fields which have production cost upwards of $3 per mmBtu," it said.
