The government on Thursday more than doubled the price of domestically-produced natural gas in a move that could enable state-run ONGC and Reliance-BP combine to bolster their margins, but could have adverse implications for user industries and end consumers. The price of gas for regulated fields will be a record $6.1 per million British thermal unit (mmBtu), against the current $2.9 per mmBtu, according to the oil ministry’s Petroleum Planning and Analysis Cell (PPAC).
The new price, which could result in a hike in CNG and piped cooking gas rates, will be for six months beginning April 1. Domestic natural gas is mainly used by fertilisers units, power producers and city gas distribution companies.
The rate applicable to difficult fields such as deep-sea KG-D6 block operated by Reliance-BP will be $9.92 per mmBtu for April-September compared to current $6.13 per mmBtu, the PPAC said.
The government sets the price of gas every six months – on April 1 and October 1 – each year based on rates prevalent in gas surplus nations such as the US, Canada and Russia.
However, Mumbai’s city gas utility Mahanagar Gas on Thursday announced a steep reduction in the retail price of CNG by `6 per kg and piped gas by Rs 3.5 per scm, effective Friday, even as the Centre more than doubled the price of domestically-produced natural gas. In a statement, MGL said consequent to the reduction in VAT on natural gas from 13.5% to 3% from April 1 by the state government, MGL has decided to pass on the entire benefit to end-consumers.
Prashant Vasisht, vice president and co-head, corporate ratings, Icra, said the domestic gas price increase was driven by a significant run-up in the prices of gas at global gas hubs. “The increase provides relief to Indian upstream producers as at earlier prices, gas production was a loss-making proposition for them.”
Reliance Industries, Oil India and ONGC will benefit from the hike as they seek to ramp up production from both the existing and new fields. Reliance-BP, for instance, will start production at MJ fields in the KG-D6 block in the last quarter of 2022, which will nearly double the block’s output.
City gas distribution (CGD) companies like Mahanagar Gas, Indraprastha Gas and Gujarat Gas, being the main buyers of domestic gas, will find their costs going up. But analysts feel since they have been passing on cost increases to the consumers in a calibrated manner over the last few weeks, the impact of costlier gas on their margins would be moderate in the short term.