Natural gas price slashed by 7.7% to $4.66 per unit

The new price reflects the significant decline in global crude oil and LNG prices since June last year

The government on Tuesday announced domestically produced natural gas will be priced at $5.17 per million British thermal units (mBtu) on the basis of net calorific value  (NCV) between  April 1 and September 30, a 7.7 per cent cut from the existing price of $5.61 per mBtu.

On gross calorific value (GCV) basis, the price is seen coming down from the existing $5.05 per unit to $4.66 per unit. The Petroleum Planning and Analysis Cell (PPAC), the technical arm of the petroleum ministry, said the new gas price of $4.66 per unit had been worked out based on the New Domestic Natural Gas Pricing Guidelines of 2014.

The new price reflects the significant decline in global crude oil and liquefied natural gas (LNG) prices since June last year, on the back of a supply glut, coupled with a historic slump in demand from major consuming economies.

The lower price would bring down fuel costs for gas-based power stations by Rs 820 crore in 2015-16. “The cost per unit is likely to decline by Rs 2 a unit, which will improve the merit-order dispatch ranking of gas-based power plants. However, given the overall gas shortage, the plant load factors (PLFs) of gas-based power stations will remain low at 20 per cent,” India Ratings said. Gas-based power plants recorded a PLF of 20.96 per cent between April and February in the current financial year.

The new lower gas price will also bring down the cost of compressed natural gas (CNG) by Rs 1.5 a kg and piped natural gas (PNG) by Rs 1 a standard cubic metre (SCM). The benchmark indices of Henry Hub in the US, National Balancing Point in the UK, Canada’s Alberta Hub and Russia’s gas prices have declined between January 2014 and December 2014. The new gas price is the average of the four global prices in this 12-month period.

According to a mechanism approved by the Union Cabinet in October 2014, the price of domestically produced natural gas is to be revised every six months using weighted average in gas-surplus economies of US/Mexico, Canada and Russia. This is the first reduction in the price of natural gas in India. The domestic price was raised from $4.2 per mBtu to $5.61 per mBtu effective November 1, 2014.