New Delhi: The government on Thursday hiked the price of natural gas by 62 per cent, which is used to generate electricity, make fertilizers and CNG used as fuel in automobiles and cooking gas for domestic cooking.
This is the first rate hike since April 2019 and comes on the back of a firming up of benchmark international prices, but does not reflect the spot or current price rally of liquefied natural gas (LNG) seen over the past few weeks.
The oil ministry’s Petroleum Planning and Analysis Cell (PPAC) said rates per million to be paid for gas produced from fields awarded to state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) per million British thermal units. Period of six months from 1st April
Simultaneously, the price of gas produced from difficult fields such as Deepsea, which is based on a different formula, was raised to $6.13 per mmBtu from the current $3.62 per mmBtu.
This is the maximum price that Reliance Industries Limited and its affiliate BP Plc are entitled to for gas originating from deep sea blocks like KG-D6.
Industry sources said CNG and piped LPG rates are likely to increase by 10-11 per cent in cities like Delhi and Mumbai due to increase in gas prices.
This will also increase the cost of power generation but consumers will not feel any major problem as the share of electricity generated from gas is very less.
Similarly, the cost of fertilizer production will also go up, but as the government subsidizes crop nutrients, rates are unlikely to increase.
In the last revision in April this year, the rates paid to ONGC were left unchanged at $1.79, while the price of deep-sea gas was reduced to $3.62 from $4.06 per mmBtu.
A $1 increase in gas price gives ONGC a year-on-year revenue of Rs 5,200 crore. Sources said that after accounting for taxes and other charges, this translates into Rs 3,200-3,300 crore in EBDITA for the company.
Gas prices were last raised in April 2019 and have since fallen due to a fall in global benchmark rates.
While the government determines the price of gas produced by ONGC from the fields assigned to it on nomination basis, it bi-annually announces a cap or maximum price that operators can get by winning exploration acreage under the licensing round.
Sources said operators should find out the market price by seeking bids from users, but the rate is subject to the price ceiling announced by the government.
Reliance-BP had recently achieved a rate of over $6 per mmBtu in its exploration of new gas from its Krishna Godavari Basin block.
“The price of domestic natural gas on a Gross Calorific Value (GCV) basis for the period October 1, 2021 to March 31, 2022 is $2.90 per mmBtu,” PPAC said.
Similarly, the “price range” for gas produced from “discoveries in deep water, ultra-deep water and high pressure-high temperature regions” is $6.13 per mmBtu.
natural gas price Every six months – on 1 April and 1 October – each year is determined with an interval of one quarter in a year based on the prevailing rates in surplus countries such as the US, Canada and Russia.
So the price from October 1st to March 31st is based on the average price from July 2020 to June 2021.
Sources said gas prices had fallen when the pandemic broke out, but later recovered as demand picked up.
The recent jump in rates will be reflected in the prices with effect from April next year.
The gas price fixed in the last few years was unprofitable for the producers as it was much below the cost of production.
Sources said ONGC had posted a loss of Rs 4,272 crore on the gas business in 2017-18, which increased to over Rs 6,000 crore from April 2020 to March 2021.
Soon after a new gas pricing formula was introduced by the government in November 2014, ONGC was losing 65 million standard cubic meters of gas per day from domestic fields, which had “inherent limits” as it could be used at pricing centers of gas surplus. was based on. Countries like America, Canada and Russia.
Sources said ONGC in a recent release to the government said that the break-even price for gas production from new discoveries was in the range of $5-9 per mmBtu.
The Congress-led UPA had approved a new pricing formula to be implemented in 2014, which would have increased rates, but the BJP-led government scrapped it and brought in a new formula.
The new formula takes into account volume-weighted annual averages with gaps of one-quarter of the prevailing prices in Henry Hub (US), National Balancing Point (UK), Alberta (Canada) and Russia.
The first revision rate using the new formula was $5.05, but continued to fall until it reached $2.48 for the April 2017 to September 2017 period in subsequent six-monthly reviews.
Thereafter, it increased to $3.69 in April 2019-September 2019 and was further reduced to $1.79 in subsequent rounds.
This is the first rate hike since April 2019 and comes on the back of a firming up of benchmark international prices, but does not reflect the spot or current price rally of liquefied natural gas (LNG) seen over the past few weeks.
The oil ministry’s Petroleum Planning and Analysis Cell (PPAC) said rates per million to be paid for gas produced from fields awarded to state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) per million British thermal units. Period of six months from 1st April
Simultaneously, the price of gas produced from difficult fields such as Deepsea, which is based on a different formula, was raised to $6.13 per mmBtu from the current $3.62 per mmBtu.
This is the maximum price that Reliance Industries Limited and its affiliate BP Plc are entitled to for gas originating from deep sea blocks like KG-D6.
Industry sources said CNG and piped LPG rates are likely to increase by 10-11 per cent in cities like Delhi and Mumbai due to increase in gas prices.
This will also increase the cost of power generation but consumers will not feel any major problem as the share of electricity generated from gas is very less.
Similarly, the cost of fertilizer production will also go up, but as the government subsidizes crop nutrients, rates are unlikely to increase.
In the last revision in April this year, the rates paid to ONGC were left unchanged at $1.79, while the price of deep-sea gas was reduced to $3.62 from $4.06 per mmBtu.
A $1 increase in gas price gives ONGC a year-on-year revenue of Rs 5,200 crore. Sources said that after accounting for taxes and other charges, this translates into Rs 3,200-3,300 crore in EBDITA for the company.
Gas prices were last raised in April 2019 and have since fallen due to a fall in global benchmark rates.
While the government determines the price of gas produced by ONGC from the fields assigned to it on nomination basis, it bi-annually announces a cap or maximum price that operators can get by winning exploration acreage under the licensing round.
Sources said operators should find out the market price by seeking bids from users, but the rate is subject to the price ceiling announced by the government.
Reliance-BP had recently achieved a rate of over $6 per mmBtu in its exploration of new gas from its Krishna Godavari Basin block.
“The price of domestic natural gas on a Gross Calorific Value (GCV) basis for the period October 1, 2021 to March 31, 2022 is $2.90 per mmBtu,” PPAC said.
Similarly, the “price range” for gas produced from “discoveries in deep water, ultra-deep water and high pressure-high temperature regions” is $6.13 per mmBtu.
natural gas price Every six months – on 1 April and 1 October – each year is determined with an interval of one quarter in a year based on the prevailing rates in surplus countries such as the US, Canada and Russia.
So the price from October 1st to March 31st is based on the average price from July 2020 to June 2021.
Sources said gas prices had fallen when the pandemic broke out, but later recovered as demand picked up.
The recent jump in rates will be reflected in the prices with effect from April next year.
The gas price fixed in the last few years was unprofitable for the producers as it was much below the cost of production.
Sources said ONGC had posted a loss of Rs 4,272 crore on the gas business in 2017-18, which increased to over Rs 6,000 crore from April 2020 to March 2021.
Soon after a new gas pricing formula was introduced by the government in November 2014, ONGC was losing 65 million standard cubic meters of gas per day from domestic fields, which had “inherent limits” as it could be used at pricing centers of gas surplus. was based on. Countries like America, Canada and Russia.
Sources said ONGC in a recent release to the government said that the break-even price for gas production from new discoveries was in the range of $5-9 per mmBtu.
The Congress-led UPA had approved a new pricing formula to be implemented in 2014, which would have increased rates, but the BJP-led government scrapped it and brought in a new formula.
The new formula takes into account volume-weighted annual averages with gaps of one-quarter of the prevailing prices in Henry Hub (US), National Balancing Point (UK), Alberta (Canada) and Russia.
The first revision rate using the new formula was $5.05, but continued to fall until it reached $2.48 for the April 2017 to September 2017 period in subsequent six-monthly reviews.
Thereafter, it increased to $3.69 in April 2019-September 2019 and was further reduced to $1.79 in subsequent rounds.
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