India Raises Domestic Gas Rates on Surging Overseas Prices
(Bloomberg) -- India increased the price of natural gas produced from domestic fields for the first time in two years due to skyrocketing prices overseas, putting more pressure on industries in the wake of the Covid-19 pandemic.
The price of gas produced from fields awarded to state explorers has been increased by 62% to $2.9 per million British thermal units, according to the oil ministry’s Petroleum Planning & Analysis Cell. It also raised the ceiling price for gas produced from difficult fields such as Reliance Industries Ltd.’s KG-D6 block by 69% to $6.13/mmBtu.
The higher prices, which take effect from Oct. 1, will boost the income of producers from Oil & Natural Gas Corp. to Reliance Industries, and facilitate Prime Minister Narendra Modi’s ambition of more than doubling the fuel’s share in India’s energy mix to 15% by 2030. Still, it will pose a challenge to gas distributors, who will need to increase rates for their customers.
“The increase in gas prices provides limited relief to Indian upstream producers as even at these prices, gas production remains a loss-making proposition for most fields,” despite some decline in oil field services and equipment costs, said Sabyasachi Majumdar, senior vice president at ICRA Ltd.
India sets the price of domestically-produced natural gas through a formula linked to international rates, including the U.K. and the U.S. Prices for the heating and power-generation fuel are surging globally amid mounting concern that inventories won’t be able to meet demand in the northern hemisphere this winter. That could set India on course for further increases in domestic gas prices.
India’s pricing formula is on a lag, and doesn’t capture the most immediate price increases. The gains in prices over the last few months will be reflected when India’s gas rates are revised from April.
India’s gas price could rise to $6.8 per mmBtu in the financial year that begins in April, ICICI Securities said in a note earlier this month. The higher prices pose challenges for city-gas retailers such as Gujarat Gas Co., Mahanagar Gas Ltd. and Indraprastha Gas Ltd., who may have to increase consumer prices by 10% to 11% by next month, it said.
Retailers could also raise prices of compressed natural gas by as much as 53% by October 2022 to pass on the rising cost and maintain margins, ICICI Securities said.
©2021 Bloomberg L.P.