BackNatural gas price capped at $3.06/unit
Order reduce ceiling for natural gas prices is in line with softer global prices, to which local gas is benchmarked
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The oil ministry on Thursday lowered the ceiling price of natural gas produced from blocks that were auctioned after 1999 by about 20% to $3.06 per million British thermal unit (mBtu) for the April-September period, in line with the softer global gas price to which local gas is benchmarked.
The revised price cuts the gas margins for Oil India Ltd, Oil and Natural Gas Corp. and Reliance Industries Ltd which were getting a price of $3.82 a unit since 1 October 2015.
The reduction in gas price is likely to be reflected in the price of transportation fuel compressed natural gas (CNG) and piped natural gas (PNG) sold by Gail India Ltd units.
Domestic gas price is reset every six months taking the average price of four global benchmarks—the US-based Henry Hub, Canada-based Alberta Gas, the UK-based NBP, and Russian gas, as per a formula approved by the government in October 2014. But this does not apply to gas from fields such as Panna/Mukta and Tapti in western offshore and Ravva in Bay of Bengal allocated to state-owned firms without an auction.
The Petroleum Planning and Analysis Cell of the ministry also started the practice of notifying the ceiling price of gas to be produced from deep-sea, ultra-deep sea, high pressure and high temperature areas as per the formula approved by the Cabinet on 10 March. Hence, gas from hard-to-reach areas will be priced at $6.61 per mmBtu, but firms will take some years to benefit from the liberal price, as this applies only to future production from such fields.
“The revised price brings some parity between gas price in the domestic market and that in the global market. The low price applicable to domestic gas today will not deter companies making fresh investments in exploration and production, which is a call taken on the basis of a long term view of the sector," said Kalpana Jain, Senior Director at Deloitte Touche Tohmatsu India Pvt. Ltd.
If freight rate is included, imported liquefied natural gas (LNG) would cost about $10-11 per unit by the time it reaches the consuming industry’s facility, a reason cited by firms asking for higher price to encourage investments into capital intensive exploration activities.
But the centre wants to balance the interest of energy firms with that of user industries such as fertilizer and power which are subject to some sort of cap on price of their output by state or regulatory agencies.
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