India Cuts Natural Gas Price By 25% To Decade Low
A pressure meter is seen on an in-ground liquefied natural gas (LNG) tank. (Photographer: Tomohiro Ohsumi/Bloomberg)

India Cuts Natural Gas Price By 25% To Decade Low

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Natural gas price in India touched the lowest rate on record after the government on Wednesday slashed the price by 25% to $1.79, a move likely to dent revenues of producers.

The price of gas, which is used to generate electricity, make fertiliser and CNG for automobiles, has been cut to $1.79 per million British thermal unit for six months beginning Oct. 1 from the current $2.39, an order of the Oil Ministry's Petroleum Planning and Analysis Cell said.

This is the third straight reduction in rate in one year. The price was cut by a steep 26% to $2.39 in April.

The rate paid to producers of new gas from difficult fields such as deepsea has also been cut to $4.06 per mmBtu from $5.61.

Natural gas price is set every six months on April 1 and Oct. 1 each year based on rates prevalent in surplus nations such as the U.S., Canada and Russia.

The rate from Oct. 1 is equivalent to the price paid to Oil and Natural Gas Corporation and Oil India Ltd. prior to May 2020 when a formula based pricing was first introduced.

While the cut in prices would mean widening of losses for India's top oil and gas producer ONGC, it may also lead to lower cost of production of electricity and CNG as well as lower piped natural gas prices.

ONGC has seen incurring losses on the 65 million standard cubic meters per day of gas it produces from domestic fields shortly after the government in November 2014 introduced a new gas pricing formula that had "inherent limitations" as it was based on pricing hubs of gas surplus countries such as the U.S., Canada, and Russia.

Also read: ONGC Is The Top Gainer On Nifty. Here’s Why

In previous years, loss from the gas segment was getting offset from the gain from the oil business. But with oil business itself coming under severe strain due to a sharp slump in benchmark prices, it has become difficult for the company to meet even the operating expenses, they said.

In May 2010, the government had raised the rate of gas sold to power and fertilizer firms from $1.79 per mmBtu to $4.20. ONGC and OIL got $3.818 per mmBtu price for the gas they produced from fields given to them on nomination basis and after adding a 10% royalty, the fuel cost $4.20 per mmBtu for consumers.

The Congress-led UPA had approved a new pricing formula for implementation in 2014 that would have raised the rates but the BJP-led government scrapped it and brought a new formula.

Also read: Natural Gas Is the Rich World’s New Coal

The new formula takes into account the volume-weighted annual average of the prices prevailing in Henry Hub (U.S.), National Balancing Point (the U.K.), Alberta (Canada), and Russia with a lag of one-quarter. Prices are set every six months on April 1 and Oct. 1 each year.

The rate at the first revision, using the new formula, came to $5.05 but in the subsequent six-monthly reviews kept falling till it touched $2.48 for April 2017 to September 2017 period.

Subsequently, it rose to $3.69 in April 2019-September 2019 before being cut by 12.5% in October 2019 to $3.23.

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