Govt cuts domestic natural gas price by 26% for first half of FY21

The government on Tuesday cut the domestic natural gas price for the April-September period to $2.39 per million British thermal unit (mBtu), the lowest in six years since the Narendra Modi government introduced the new pricing formula in November 2014.
 

The rate for gas produced from difficult fields will be $5.61 mBtu on gross calorific value basis. This ceiling price will be applicable for deepwater, ultra-deepwater, and high pressure-high temperature areas, including the under-development fields of Reliance Industries in KG-D6 block in Eastern Offshore.
 

On the other hand, the price of the majority of natural gas produced in the country, including by companies like Oil and Natural Gas Corporation and Oil India, will be up 26 per cent to $2.39 a unit for the six months, up from $3.23 a unit for the October 2019 to March 2020 period, according to a notification by the Petroleum Planning and Analysis Cell (PPAC).
 

For the October-March period, the price for difficult field was at $8.41 per mBtu. Earlier the lowest price is the last six years was $2.48 a mBtu for the period of April-September 2017.

After coming to power in 2014, the Modi government had scrapped a pricing formula suggested by a panel headed by C Rangarajan, based on the average of netback price that LNG exporters to India got and the rate commanded by global gas producers. Instead, a new pricing was introduced in November 2014, based on the average rate prevailing in exporting countries like the US, the UK, Canada, and Russia.

“The new pricing will definitely make exploration unviable for domestic producers. With international prices coming down, the government should have considered a lower cap to boost production. Anything below $3 a unit will make it difficult for producers,” said a senior executive of a private sector oil and gas major.
 

According to the government data, gross production of natural gas for February 2020 was 2,341 MMSCM (million metric standard cubic meters), which was 8.8 per cent lower than the corresponding month of the previous year. The cumulative gross production of natural gas of 28,769 MMSCM for FY20 until February was 4.3 per cent less than the corresponding period of the previous year.
 

Besides the drop in prices, the current lockdown is likely to make business difficult with less demand.  According to a report by Emkay, the current lockdown has led to a 15-20 per cent hit on demand  due to the closure of most factories in sectors, excluding fertilizer, power and refineries. GAIL may see a 15-20 million standard cubic meter per day (mmscmd) decline in marketing volumes as the lockdown progresses, while transmission volumes may fall up to 10-15mmscmd, the report said.