Natural gas prices cut by 20%; CNG, cooking gas to be cheaper

New Delhi: CNG and piped cooking gas prices across the country will fall after natural gas rates were Thursday cut by a steep 20 percent, the third reduction in last one year.

Price of natural gas produced from existing fields of state-owned ONGC and Reliance Industries has been cut to USD 3.06 per million British thermal unit with effect from Friday, an oil ministry official said.

Gas price on gross calorific value (GCV) currently is USD 3.82 per mmBtu.

On a net-calorific value (CV) basis, the gas price will be USD 3.4 per mBtu as compared to USD 4.24 currently.

As per the new gas pricing formula approved by the NDA-government in October 2014, gas prices are to be revised every six months and the next change is due on April 1.

The reduction in natural gas prices would mean lower raw material cost for compressed natural gas (CNG) and natural gas piped to households (PNG) and would translate into reduction in retail prices.

Government also announced the cap price based on alternate fuels for undeveloped gas finds in difficult areas like deepsea which are unviable to develop as per the existing pricing formula.

Earlier this month the Cabinet approved marketing and pricing freedom for all undeveloped discoveries lying in difficult areas subject to a cap. The cap for April 1 to September 30 will be USD 6.61 per mmBtu on GCV basis and USD 7.3 on NCV basis, the official said.

This is the third and the steepest reduction in natural gas prices which will dent the revenue of state-owned Oil and Natural Gas Corp (ONGC) by Rs 4,300 crore on an annual basis.

ONGC is the country's biggest gas producer, accounting for some 60 percent of the 90 million standard cubic meters per day current output.

All of its gas as well as that of Oil India Ltd and private sector RIL's KG-D6 block are sold at the formula approved in October 2014. This formula however does not cover gas from fields like Panna/Mukta and Tapti in western offshore and Ravva in Bay of Bengal.

The price cut should result in a reduction of Rs 0.5 to Rs 1.5 per standard cubic meter in price of piped natural gas (PNG) for domestic customers and Rs 0.8-1.5 per kg cut in CNG prices, said India Ratings and Research (Ind-Ra).

Retailers like Indraprastha Gas Ltd (IGL) in Delhi are likely to announce a revision in rate tomorrow.

CNG price in the national capital were cut by 80 paise per kg and piped cooking gas (PNG) by 70 paise per unit following an 18 percent reduction in natural gas prices at the last revision on October 1, 2015.

CNG for automobiles costs Rs 37.20 per kg in Delhi while PNG is priced at Rs 24.65 per scm.

Ind-Ra said lower prices will directly impact the revenues of domestic gas producers by Rs 3000-3,200 crore during the first half of 2016-17.

ONGC and Oil India which contribute approximately 75 percent of total domestic gas production will bear the maximum revenue loss.

"The revised pricing will pose viability challenges for fields which have production cost upwards of USD 3 per mmBtu," it said.

The reduction in natural gas price would also benefit fertiliser, power and steel companies who heavily rely on natural gas and it will lower working capital requirements.

The reduction in domestic gas prices by 20 percent to USD 3.06 per mmBtu applicable for April 1, 2016 to September, 30, 2016. However, the benefit of reduced gas price will be marginally offset by the near 2 percent rupee depreciation over October 2015 to March 2016.

This is the third consecutive domestic gas price reduction since the implementation of the domestic gas pricing formula and is driven by the decline in average gas prices prevalent at the reference hubs over the period January 2015-December 2015.

The price of gas has declined by around 39 percent since the implementation of the gas pricing formula in October 2014.

Last time the price of natural gas was lowered to USD 3.82 per mmBtu from USD 4.66 on October 1, 2015.

On net calorific value (NCV) basis, the new gas price for October 1, 2015 to March 31, 2016 came to USD 4.24 per mmBtu as compared to USD 5.18 previously.

As per the formula approved in October 2014, rates are to be determined on a semi-annual basis and calculated based on a volume weighted average of rates in gas surplus nations of the US, Canada and Russia, based on the 12-month trailing average price with a lag of three months.

Using prevailing price in gas surplus nations like the US, Russia and Canada, the government had in October 2014 announced a new pricing formula that led to rates rising by about 33 percent to USD 5.61 per mmBtu on NCV basis for period up to March 31, 2015 from the long-standing price of USD 4.2.

The rates, on net calorific value (NCV) basis, dropped to USD 5.05 per mmBtu for six-month period beginning April 1, 2015.