The price of natural gas produced by state-owned firms such as ONGC from fields given to them on nomination basis has been hiked by a hefty 62% to $ 2.90 per million British thermal unit (mBTU) for the six month period beginning 1 October 2021. The increase follows the lower production amid higher demand increase from Europe and North America that has raised gas process globally.
The domestic gas price is linked to the weighted average price of four global benchmarks (US, UK, Canada and Russia). Spot US LNG prices have risen from around $2.4/mBtu in April to $4.2/mBtu in August.
The ceiling price for gas to be produced from difficult fields — which have higher pricing and marketing freedom — has been raised by 69% to $6.13/mBtu. Rising prices coincide with gas production being ramped up at the difficult fields of Reliance Industries and BP’s ultra-deep-water KG-D6 Block in the Krishna Godavari basin and ONGC’s U1B deep-water gas located in KG-DWN 98/2 block on the east coast.
The hike in prices will have adverse implications for user industries including power and fertilisers,. It might also spike inflation and strain the country’s current account. City gas units supplying piped natural gas (PNG) to household kitchens are likely to pass on the price hike to consumers.
India had slashed domestic gas price by a sharp 25.1% to the all-time low rate of $1.79 per mBtu in September 2020, and had kept the rate unchanged in the last price revision in April. For difficult fields, the tariff ceiling was cut by 27.6% to $4.06/mBtu in September 2020, and in April it was cut by another 11% to $3.62/mBtu.
The rise in prices is seen to benefit state-run Oil and Natural Gas Corporation (ONGC) — the producer of about 80% of the domestic natural gas — which was facing severe under-recoveries at previous rates with production cost of around $3.7/mmBtu. Indigenous natural gas production caters to about only 51% of the country’s requirements. The price hike is seen to encourage gas producers to aggressively increase production or get into new high-risk projects.