Natural gas price likely to be hiked by 8%

Natural gas price in India is likely to be hiked by 8 per cent from April 1 driven by an increase in rates in reference markets including US Henry Hub.

Price of natural gas, used for generating power and making fertiliser and petrochemicals as well as CNG for automobiles, is likely to rise to $2.7 per million British thermal unit for the period from April 1, 2017 to September 30, 2017 from current $2.5 per mmBtu, industry sources said.

This will be the first increase in domestic gas prices in two years.

Rates may further rise to $3.1 per mmBtu in second half of 2017-18 fiscal (April to March).

As per the mechanism approved in October 2014, the price of domestically produced natural gas is to be revised every six months -- April 1 and October 1 -- using weighted average or rates prevalent in gas-surplus economies at Henry Hub of US, National Balancing Point of the UK, rates in Alberta (Canada) and Russia with a lag of one quarter.

So, the rates for April 1, 2017 to September 30, 2017 period will be based on average price at the international hubs during January 1, 2016 to December 31, 2016.

Sources said prices in the reference markets for 2016 are known and so the rates in first half of fiscal year beginning April 1 can be calculated.

Rates were last changed on October 1, 2016 when they were cut by 18 per cent to $2.5 per mmBtu from $3.06. This was the fourth six-monthly reduction.

A rate hike will provide relief to upstream gas producers who have been getting rates below the cost of production. But at the same time, an increase in natural gas prices would mean higher raw material cost for compressed natural gas (CNG) and natural gas piped to households (PNG) and would translate into hike in retail prices.

It would also mean higher feedstock cost for power generation and manufacturing of fertilisers.

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

At the time of last revision, the government had also announced a sharp reduction in cap price based on alternate fuels for undeveloped gas finds in difficult areas like deep sea which are unviable to develop as per the existing pricing formula.

The cap for October 1, 2016 to March 31, 2017 was fixed at $5.3 per mmBtu, down from $6.61 in April 1 to September 30 period. This cap too will rise to $5.7 per mmBtu, sources said.

ONGC is the country's biggest gas producer, accounting for some 60 per cent of the 90 million standard cubic meters per day current output.

All of its gas as well as that of Oil India Ltd and private sector RIL's KG-D6 block are sold at the formula approved in October 2014. This formula however does not cover gas from fields like Panna/Mukta and Tapti in western offshore and Ravva in Bay of Bengal.