Natural gas price cut by 18 percent, to $3.82 per unit

The price of domestic natural gas was cut to $3.82 per unit for the period October 1 till the end of this fiscal, the government announced on Wednesday.

"In accordance with the New Domestic Natural Gas Pricing Guidelines, 2014, issued by Ministry of Petroleum and Natural Gas, the price of domestic natural gas for the period October 1, 2015 to March 31, 2016, is $3.81 per mBtu on GCV basis," the Petroleum Planning and Analysis Cell announced.

The new price is a sharp 18 percent cut over the current $4.66 per million British thermal unit (mBtu) on gross calorific value (GCV) basis.

On net calorific value (NCV) basis, the new gas price for October 1 to March 31, 2016, would be $4.24 per mBtu as compared to $5.18 currently.

The government had in October last year announced a price for domestic producers based on a new formula at $5.61 per mBtu on NCV basis for the period up to March 31, 2015 that was a hike from the then existing $4.2 mBtu.

The rates for the six-month period from April 1, 2015, dropped to $5.05 per mBtu on NCV basis.

Domestic gas prices are calculated by taking the weighted average prices at the Henry Hub of the US, the National Balancing Point of Britain and the rates in Alberta of Canada and Russia with a lag of one quarter.

Thus, the October 1, 2015 to March 31, 2016 rate announced is based on the average of prices from July 1, 2014 to June 30, 2015.

This reduction will impact producers like state-run Oil and Natural Gas Corp, which stands to lose Rs.1,059 crore from its profits, ONGC's director (finance) A.K. Srinivasan told reporters here.

The new price, however, will not much affect the Reliance Industries, which by a government decision will continue to be paid the pre-October 2014 price of $4.2 per unit for its eastern offshore KG-D6 gas block, till the resolution of the dispute regarding shortfall in its output.

An official source told IANS here that the central government earnings from royalty and income tax will fall by around Rs.800 crore during the rest of the fiscal.

State government earnings from VAT on gas sales will also drop by around Rs.250 crore, he added.

Lower gas price will, however, benefit users in the power and fertiliser sectors due to lower feedstock costs.

Prices of non-subsidised gas cylinders at market rates as well as that of city piped gas are going to be cut according to Deepak Mahurkar, PwC India leader for oil and gas.