Government slashes natural gas prices by 16% to $4.24 per unit

The government has cut natural gas prices by 16% to $4.24 per unit for the six-month period, beginning October 1.

Natural gas prices, according to a formula approved by the government in October last year, will fall to $4.24 per million British thermal unit on net calorific value (NCV) basis from the current $5.50 per mmBtu.

On the gross calorific value (GCV) basis, the new gas price for October 1 to March 31 will be $3.82 per mmBtu as compared to $4.66 currently, officials said.

Using prevailing price in gas surplus nations like the US, Russia and Canada, the government had in October last year announced a new pricing formula that led to rates rising by about 33% to $5.61 per mmBtu for a period up to March 31, 2015 from the long-standing price of $4.2.The rates, on net calorific value (NCV) basis, dropped to $5.05 per mmBtu for six month period beginning April 1, 2015.

The price cut is the second reduction in rates ever – the first being on April 1.

While the cut will impact the revenue of producers like Oil and Natural Gas Corp (ONGC) and Reliance Industries, it will bring gains for users in the power and fertiliser sector in the form of lower feedstock cost.

As per the mechanism approved in October 2014, price of domestically produced natural gas is to be revised every six months using weighted average or rates prevalent in gas-surplus economies of US/Mexico, Canada and Russia to incentivise exploration in deep-sea that wasn’t viable at $4.2 rate.

Indian gas prices are calculated by taking the weighted average price at Henry Hub of the US, National Balancing Point of the UK, rates in Alberta (Canada) and Russia with a lag of one quarter.

So, the rates for April 1 to September 30 period were based on the average price at the international hubs during January to December 2014.

The October 1, 2015 to March 31, 2016 rate will be based on the average of prices during July 1, 2014 to June 30, 2015.

The current price of $5.61 per mmBtu is already among the lowest in Asia Pacific. China pays explorers $11.9 per mmBtu rate for new projects while Indonesia and the Philippines prices the fuel at $11 and $10.5, respectively.

Gas from offshore fields in Myanmar, where Indian firms ONGC and GAIL have stake, are sold to China for $7.72 per unit.

Thailand prices gas from new projects at $8.2 per mmBtu.

The only nations with lower rates than prevailing price are Vietnam ($5.2) and Malaysia ($5).