Gas price for industrial use cut by 18% to $2.5/mBtu

According to the new gas pricing formula approved by the NDA govt in Oct 2014, gas prices are to be revised every 6 months

Price of natural gas, used for generating power, making fertiliser and supplying CNG, was on Friday cut by 18 per cent to $2.5 per million British thermal unit, fourth reduction in 18 months.

Rate of natural gas produced from existing fields of state-owned Oil and Natural Gas Corp (ONGC) and Reliance Industries has been cut to $2.5 per mmBtu for a 6-month period from October 1, from $3.06 per mmBtu currently.

According to the new gas pricing formula approved by the NDA- government in October 2014, gas prices are to be revised every six months and the next change is due on April 1.

The reduction in natural gas prices would mean lower raw material cost for compressed natural gas (CNG) and natural gas piped to households (PNG) and would translate into reduction in retail prices. It would also mean lower feedstock cost for power generation and manufacturing of fertilisers.

Rates were last cut by 20 per cent to $3.06 from April 1. The price of gas between October 1, 2015 and March 31, 2016 was $3.81 per mmBtu and $4.66 in prior six month period.

"The price of domestic natural gas for the period October 1, 2016 to March 31, 2017 is $2.50 per mmBtu on Gross Calorific Value (GCV) basis," said a notification issued by the Oil Ministry's Petroleum Planning & Analysis Cell.

The reduction will hit producers like state-owned Oil and Natural Gas Corp (ONGC) as well as central government whose earnings from royalty and income tax will dip by about Rs 800 crore during the remainder of the fiscal, according to industry estimates.

Every dollar dip in gas price results in Rs 4,000 crore hit in revenue of ONGC on an annual basis. The current price reduction would hit its revenue by about Rs 1,000 crore.

Government also announced a sharp reduction in cap price based on alternate fuels for undeveloped gas finds in difficult areas like deepsea which are unviable to develop as per the existing pricing formula.

The cap for October 1, 2016 top March 31, 2017 will be $5.3 per mmBtu, down from $6.61 in April 1 to September 30 period, PPAC notification said.