Government doubles gas prices; GNC Rates Could Rise

The government on Thursday more than doubled the price of natural gas used to generate electricity, make fertilizer, process into CNG and pipe into household kitchens for cooking, following a spike in global gas prices. ‘energy.

The price of gas produced from former regulated fields, such as the country’s largest gas field Bowl of CGSBwill hit an all-time high of $6.10 per million British thermal units (mmBtu) from $2.90 per mmBtu currently, according to the Department of Petroleum’s Petroleum Planning and Analysis Cell (cMYP).

The new price, which will likely result in higher CNG and cooking gas rates, will be six months from April 1. Petrol and diesel prices have been increased nine times in the last 10 days totaling Rs 6.4 per liter while LPG cooking gas tariffs have also increased by Rs 50 per cylinder. The latest increase in gas prices will further fuel inflation.

The rate applicable to newer and more difficult domains such as those of Reliance Industries Ltd. in offshore block KG-D6, will fetch $9.92 per mmBtu from April to September, up from $6.13 per mmBtu currently, according to the PPAC notification.

These are the highest prices ever paid to Indian gas producers.

The government sets the price of gas every six months – on April 1 and October 1 – of each year based on the tariffs in force in gas-surplus countries such as the United States, Canada and Russia.

The gas price hike will likely lead to a 10-15% increase in CNG and cooking gas tariffs in cities like Delhi and Mumbai, industry sources said.

Prashant Vasisht, Vice President and Co-Head, Corporate Ratings, ICRA Ltd, said: “The domestic gas price increase was driven by the significant rise in gas prices in global gas hubs. The increase in gas prices relieves the Indians. Upstream producers As at prior prices, gas production was a loss-making proposition for most fields for Indian upstream producers. »

The supply of CNG and piped cooking gas in cities comes from gas produced by ONGC.

Rising prices will also drive up the cost of producing electricity, but consumers may not feel a major pinch as the share of electricity generated from gas is very low.

Similarly, the cost of producing fertilizers will also increase, but as the government subsidizes crop nutrients, an increase in rates is unlikely.

This is the second consecutive price increase and the best US$5.05 paid to ONGC and Oil India Ltd for old fields between November 2014 and March 2015 and US$9.32 for new fields in April-September 2019.

The new tariffs reflect soaring prices at global benchmarks – US-based Henry Hub, Canada-based Alberta Gas, UK-based NBP and Russian Gas as well as Liquefied Natural Gas (LNG) tariffs in 2021 following a supply crisis. with the return of demand after the devastation by the pandemic.

Domestic prices are set based on the one-year volume-weighted average price in these global benchmarks with a one-quarter lag. Thus, the price from April 1 to September 30 is based on the average price from January 2021 to December 2021. This is the period when global rates exploded.

For difficult areas such as discoveries in deep water, ultra-deep water and high-pressure-high-temperature areas, a slightly modified formula is used by incorporating the price of LNG, which had also exploded in 2021.

KG fields operated by Reliance-bp are classified as difficult fields. These field operators are allowed to discover the market price, but this is subject to a cap set for difficult fields twice a year.

For the producers, it will be the first time in six years that they will obtain a remunerative price.

ONGC had suffered losses on the 65 million standard cubic meters per day of gas it produces from domestic fields shortly after the government introduced a new gas pricing formula in November 2014 that had “limits inherent” because it was based on excess gas pricing centres. nations.

The sources said that the ONGC had in several communications to the government stated that the equilibrium price to produce gas from new discoveries was in the range of US$5-9 per mmBtu and that for old fields such as Mumbai High and Bassein it was around 3.6 USD. -3.7 per mmBtu.

The Congress led UPA had approved a new tariff formula for implementation in 2014 which would have increased tariffs, but the BJP-led government abandoned it and introduced a new formula.

The new formula takes into account the annual volume-weighted average of prices prevailing at Henry Hub (USA), National Balancing Point (UK), Alberta (Canada) and Russia with a quarter lag.

The rate at the first review, using the new formula, was $5.05 per mmBtu, but in subsequent semi-annual reviews it continued to decline until it reached $2.48 per mmBtu for the review period. April 2017 to September 2017.

Thereafter, it rose to $3.69 per mmBtu in April 2019-September 2019 before being reduced in subsequent cycles to $1.79 per mmBtu. PTI ANZ MR

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