NEW DELHI: The price of natural gas produced from government-regulated domestic fields will rise to $6.1 per unit (million per British thermal unit), their highest-ever, from April 1 due to the impact of higher global benchmark prices on the latest six-monthly revision.
The revision will squeeze household budgets by making CNG and PNG services 10-15% costlier, shrink the margins of city gas operators and inflate the government’s Rs 1.05 lakh crore fertiliser subsidy estimate for 2022-23 if farm gate prices of nutrients, especially urea, are not raised.
The higher price will, however, be positive for producers such as ONGC, Oil India and Reliance, who will see their earnings rise and operations becoming viable. Gas production was a loss-making proposition at earlier prices that did not cover production costs.
ONGC’s gains, for example, are estimated at Rs 9,000 crore on the current annual production of 24 billion cubic metres.
Overall power tariffs are unlikely to be impacted due to an insignificant generation using domestic gas.
The revised price, notified by the Petroleum Planning and Analysis Cell of the oil ministry on Thursday, marks a 110% increase over the current price of $2.9 per unit that has been in effect from October 1, 2021.
For gas produced from geologically challenging fields such as deepwater blocks will rise to $9.92 from $6.13 per unit, marking a 61% increase.
This is the second straight hike in domestic gas prices after they rose by 62% in October last year to $2.9. Under policy implemented since October 2014, prices are revised on April 1 and October 1 on the basis of a formula based
on volume-weighted annual average prices of US Henry Hub, Canada Alberta gas, UK NBP, and Russian Natural Gas with a lag of one quarter.
Prices are expected to rise further after the next revision in October as the benchmarks continue their upswing. The new price has been worked out on the basis of January-December benchmarks. The Henry and NBP hubs have about 75% weight in the index.
Since 85% of gas used by Indraprastha Gas Ltd and Mahanagar Gas Ltd, the CNG and PNG service providers in Delhi and Mumbai, respectively, and 20% by Gujarat Gas, the operators are likely to pass on the higher cost of input by gradually raising consumer prices, especially as they have to bridge shortfall caused by rising demand with costlier imported gas.
