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NEW DELHI: The price of domestic natural gas, which was hiked in November after a gap of more than five years and a spell of political wrangling, will see a 7.6% reduction to $5.18 per million British thermal units (mmBtu) effective April 1, as the relevant global benchmark prices remained subdued in the second half of 2014. The new price based on a net calorific value basis will be announced shortly and will be valid for the first half of 2015-16.


The price reduction, the first in history, is despite Indian prices already being among the lowest in the Asia-Pacific and amid the delays in announcing the premium cleared by the Cabinet for gas produced from post-November 2014 discoveries in difficult geographies. A lowering of the gas price, analysts said, would hit state-run ONGC (which produces three-fourths of domestic gas), Reliance Industries and public-sector Oil India.


India’s current gas price of $5.61/mmBtu, up a third from the price of $4.2 that prevailed for close to six years, is far lower than $11.90 China pays for its gas producers; Indonesia and the Philippines price the fuel at $11 and $10.50, respectively.


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The revised price from April 1 is arrived at by applying the Cabinet-approved formula on the select average global prices for the fuel between January and December 2014. The CCEA on October 18 last year approved the formula, after tweaking the Rangarajan formula approved by the UPA government in June 2013. The price is to be revised every six months.


The price and volume data used to calculate the price is of the trailing four quarters’ data with one quarter lag.


Apart from cheaper global rates, the drop in gas price is also due to low trading volumes and currency volatility.


According to sources, the Directorate General of Hydrocarbons recently submitted its report on the quantum of premium for ultra-deepwater and other difficult-area blocks. The finance and petroleum ministers are expected to take a decision on this soon.


ONGC has decided to put on the back burner the development of its two deepwater blocks where it found natural gas, in the Mahanadi Basin — MN-DWN-98/3 and MN-OSN-2000/2. The firm discovered less than 1 trillion cubic feet of natural gas that is economical only at gas price of around $10.72 to $12.63/mmBtu, more than double the prevailing prices for the hydrocarbon.

(Source: The Financial Express, March 19, 2015)


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