Gas price hike in April likely to be flat

Gas price hike in April likely to be flat

Come April 1 your piped cooking gas bill or public transport fares could see a slight variation, as the Centre announces the revised rates for domestically produced natural gas.

Indications are that the revised rates will hover close to the existing rates of $ 2.5 a unit (gas is measured in million British thermal units). This rate will be effective for the first six months of FY18.

Effectively, the price could range between $2.25/mmBtu and $2.7/mmBtu, nearer to the existing $2.5/mmBtu at gross calorific value (GCV). GCV is a measure of the amount of energy gas can produce.

When calculated on GCV, it is always advantageous for the gas producer, as the end consumers bear the higher price since they are charged at the net calorific value.

NCV includes transportation margins and other charges; experts say it is close to a dollar.

Difficult terrains

The revision will also be effective for gas produced from High Pressure-High Temperature (HP-HT) discoveries, or difficult terrains.

The current ceiling price produced from HP-HT discoveries stands at $5.30/mmBtu. This could cruise up or down by 30-45 cents.

Locally produced gas price in India has been always controversial. After much deliberation the government had based the price calculations on a formula taking the weighted average or rates prevalent in gas price benchmarks — Henry Hub of US, National Balancing Point of UK, rates in Alberta (Canada) and Russia with a lag of one quarter.

Currently, imported gas price (LNG) is at $6/mmBtu, NBP at $5.5/mmBtu, and Henry Hub at $2.7/mmBtu. However, if the revised price is close to the prevailing rate or about 40-45 cents higher, the explorer will be far from happy. According to ONGC, gas below $3/mmBtu is not viable for the producers. Local gas price in India has gone done from $5.6/mmBtu in 2014 to $2.5/mmBtu today.

But, if the government pays heed to the demands of consumers like city gas distribution and fertiliser sectors, the cheap gas is what they want.

×K Ravichandran, Senior Vice-President at ICRA, said that for the fertiliser sector, the actual burden will fall on the government as it is a regulated commodity. “The only impact will be the need for more working capital to offset higher feedstock costs in the near term,” he said, adding: “Power anyway is deprived of domestic gas at present and has to depend on imports.”

The city gas companies are protected as the variation in pricing is borne by the consumers.

Beneficial for explorers

Sumit Pokharna, Oil and Gas Analyst and Deputy Vice-President – Research, Kotak Securities, said: “Even though the net impact is marginal, an expected 8 per cent hike in the price of gas would be beneficial for explorers.

“It should also be noted that the rupee has depreciated by around 2.5 per cent from last year, and there is room for up to 4 per cent depreciation in the coming year. The rupee depreciation and rise in crude oil prices will come to the aid of explorers.”.

http://www.thehindubusinessline.com/news/gas-price-hike-in-april-likely-to-be-flat/article9565910.ece

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