Natural Gas Price Hikes by 40%, CNG may Cost More

New Delhi: Prices of natural gas, which is utilized to create electricity, make compost, and is changed over into CNG to run vehicles, were on Friday hiked by a steep 40 % to record levels, in sync with the worldwide firming up of energy rates.

The rate paid for gas delivered from old fields, which compensate for around 66% of all gas produced in the country, was hiked to USD 8.57 per million British thermal units from the ongoing USD 6.1, as per an order from the oil ministry’s Petroleum Planning and Analysis Cell (PPAC).

At the same time, the price of gas from difficult and newer fields like the ones in Reliance Industries Ltd and its accomplice bp plc worked deepsea D6 block in KG basin, was hiked to USD 12.6 per mmBtu from USD 9.92, the order said.

These are the most elevated rates for administered/regulated fields (like ONGC’s Bassein field off the Mumbai coast) and unregulated market areas (like the KG basin). Likewise, this will be the third increase in rates since April 2019 and comes on the back of firming benchmark worldwide prices.

Gas is an input for making fertilizer as well as producing electricity. It is additionally changed over into CNG and channeled to household kitchens for cooking purposes. A lofty expansion in prices is probably going to reflect in higher rates for CNG and piped natural gas (PNG), which have in the last year risen by over 70 %.

The government sets the price of gas every six months – – on April 1 and October 1 – – every year based on rates prevalent in gas surplus countries like the US, Canada, and Russia in one year with a slack of one quarter. Thus, the price for October 1 to March 31 depends on the normal price from July 2021 to June 2022. This is the period when worldwide rates shot through the roof.

As higher gas prices might potentially further fuel inflation, which has been obstinately over the RBI’s usual range for the past eight months, the government has set up a committee to survey the pricing formula.

The committee, under former planning commission member Kirit S Parikh, has been approached to recommend a fair price to the end-consumer by September end yet the report is delayed. The government had in 2014 used prices in gas surplus nations to arrive at a formula for locally produced gas.

The rates as per this formula were repressed and at times lower than the expense of production till March 2022 yet rose sharply from that point, reflecting the surge in worldwide rates as a result of Russia’s attack on Ukraine.

The price of gas from old fields, which are predominantly from state-owned producers like ONGC and Oil India Ltd, dramatically increased to USD 6.1 per mmBtu from April 1.

Likewise, the rates paid for gas from difficult fields, for example, deepsea KG-D6 of Reliance went up to USD 9.92 per mmBtu from April 1 against USD 6.13 per mmBtu.

The board has been asked to recommend a fair price to end consumers and recommend a market-oriented, transparent, and reliable pricing system for India’s long-term vision for guaranteeing a gas-based economy, as per an oil ministry order.

The government needs to more than double the share of natural gas in the primary energy basket to 15 % by 2030 from the current 6.7 %. The volume-weighted average of the price predominant in a year in US-based Henry Hub, Canada-based Alberta gas, UK-based NBP, and Russia gas are utilized to fix prices for regulated fields of ONGC and Oil India Ltd.

For difficult fields like discoveries in deepwater, ultra-deepwater, and high-pressure, high-temperature regions, a marginally changed formula is utilized by consolidating the price of LNG, which also shot through the roof in 2021.

Reliance-bp operated KG fields are delegated as difficult fields. Sources said the increase in gas price is probably going to bring about a rise in CNG and piped cooking gas rates in cities like Delhi and Mumbai.

It will also prompt an ascent in the cost of producing electricity however consumers may not feel any significant pinch as the portion of power delivered from gas is extremely low.

Additionally, the cost of producing fertilizer will also go up however as the government sponsors the crop nutrient, a hike in rates is unlikely.