India May Hike Price Of Natural Gas  By 10% For ONGC, Reliance Industries
A petrol pump employee fills Compressed Natural Gas at a gas station in Mumbai. (Photographer: Prashanth Vishwanathan/Bloomberg News)

India May Hike Price Of Natural Gas By 10% For ONGC, Reliance Industries

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In a boost to firms like Oil & Natural Gas Corporation Ltd. and Reliance Industries Ltd., the government is likely to raise the price of domestically produced natural gas by over 10 percent to over $3.72 per million British thermal unit with effect from April 1, sources in know of the development said.

The price of gas produced from difficult fields will rise to about $9 per million British thermal unit (mmBtu) from current $7.67, they said.

This will be the fourth straight increase in gas prices.

Natural gas prices are set every six months—on April 1 and Oct. 1 every year—based on average rates in gas-surplus nations like the U.S., Russia and Canada.

The rate is calculated by taking a weighted average price at Henry Hub of the U.S., National Balancing Point of the U.K., rates in Alberta (Canada) and Russia with a lag of one quarter.

So for April 1 to Sept. 30 period, the average rates prevailing during Jan. 1, 2018 to Dec. 1, 2018 would be taken.

The rates for 2018 are known and based on it the rise from April 1 comes to 10 percent, sources said,

The increase in price will boost earnings of producers like ONGC and RIL. Every dollar increase in gas price results in Rs 4,000 crore additional revenue for ONGC on an annual basis, sources said, adding that the public sector unit is the country's biggest gas producer, accounting for two-thirds of the over 70 million standard cubic meters per day current output.

However, it will also lead to a rise in price of CNG, which uses natural gas as input. It would also lead to higher cost of natural gas piped to households (PNG) for cooking purposes as well as of feedstock cost for manufacturing of fertilisers and petrochemicals.

The $3.72 per mmBtu price will be the highest since October 2015 to March 2016.

India imports half of its gas which costs more than double the domestic rate.

Natural gas prices were last hiked on Oct. 1, 2018, by 10 percent when rates moved up to $3.36 per mmBtu from $3.06.

The increase will translate into a higher cap price based on alternate fuels for undeveloped gas finds in difficult areas like deep sea, which are unviable to develop as per the existing pricing formula.

The price for such fields from April 1 would be about $9 per mmBtu for six month beginning April 1 as compared to $7.67 currently, sources said.

All of its gas, as well as that of Oil India and private sector RIL's KG-D6 block, are sold at the formula approved in October 2014. This formula, however, does not cover gas from fields like Panna/Mukta and Tapti in western offshore and Ravva in the Bay of Bengal.

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