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Natural Gas Prices To Rise By 10% From April

Natural gas prices will rise by 10 percent to their highest level in three years from April 1.

A compressed natural gas (CNG) pressure gauge is seen on a fuel bowser an Indraprastha Gas Ltd. gas station in New Delhi. (Photographer: Prashanth Vishwanathan/Bloomberg)
A compressed natural gas (CNG) pressure gauge is seen on a fuel bowser an Indraprastha Gas Ltd. gas station in New Delhi. (Photographer: Prashanth Vishwanathan/Bloomberg)

Natural gas prices will rise by 10 percent to their highest in three years from April 1. This will result in a rise in the compressed natural gas and piped cooking gas rates as well as cost of urea production.

The price of domestically produced natural gas will rise to $3.69 million British thermal unit for the April-September period against $3.36 in the previous six months, sources said.

The price of gas produced from difficult fields will rise to $9.32 per mmBtu for six months beginning April 1 from $7.67.

A formal notification is likely to be issued shortly.

An industry source said since the general elections have been announced, the government is weighing if an approval of the Election Commission is needed, even though the price revision is a six-monthly event and would have gone ahead irrespective of polls or no polls.

This will be the fourth straight increase in gas prices.

Prices will be at their highest level since the October 2015-March 2016 period when the rates of domestically produced natural gas were at $3.82 mmBtu.

Natural gas prices are set every six months — on April 1 and Oct. 1 every year — based on average rates in gas-surplus nations such as 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 the April 1-Sept. 30 period, the average rates prevailing during Jan. 1, 2018, to Dec. 1, 2018, has been taken.

The increase in price will boost earnings of producers like Oil and Natural Gas Corporation Ltd. and Reliance Industries Ltd. but 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 for cooking purposes as well as of feedstock cost for manufacturing of fertilisers and petrochemicals.

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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 PSU is the country's biggest gas producer, accounting for two-thirds of the over 70 million standard cubic metres per day current output.

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

Natural gas prices were last increased 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 alternative 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 $9.32 per mmBtu for six month beginning April 1 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.