Government resets domestic natural gas price to historic low
Mumbai: The government has reset the price of domestic natural gas to a historic low of $.179 per mmBtu (million British thermal unit) from October 1 to March 31 under its pricing policy. While gas exploration companies will see their revenues fall under in the second half of this fiscal because of this, industries that use natural gas as an input, primarily fertilizer and power, stand to benefit.
The gas price for locally produced fields stood at $ 2.39/mmBtu in the first half of the fiscal; the new price brings it down by 25.1%. Meanwhile, the ceiling price for gas to be produced from difficult fields has also fallen to $4.06/mmBtu from $5.61/mmBtu, resulting in a 27.6% decrease.
Prices of domestic natural gas have fallen third time in a row now and prices which will be prevalent H2-FY21 onwards will be the lowest gas price ever recorded under the New Domestic gas policy.
The new price was announced by Praveen Khanooja, Director General of the Petroleum Planning and Analysis Cell, a department unnder the Ministry of Petroleum and Natural Gas, in a circular to ONGC, OIL Ltd and the Director General of Hydrocarbons on Wednesday.
In a research note analysing the impact of the price fall, credit ratings agency CARE Ratings said that upstream oil and gas exploration companies will see their per unit realisations in the natural gas segment decline. This could potentially discourage upstream companies to take up domestic gas exploration which is already down by 13.2% y-o-y in the current financial year (April-August) due to the low offtake of domestic natural gas, it said.
“However, the 25.1% fall in natural gas prices augurs well for natural gas end users as it substantially decreases the cost of manufacturing of urea and petrochemicals where natural gas is used as a feedstock,” the note said. “It will also result in the fall in prices of CNG (compressed natural gas) and PNG (piped natural gas) which will benefit the consumers. Decrease in price of natural gas will also be beneficial for the margins of the power sector and sponge iron industry where it used for the generation of energy.”
Mint reported earlier this month that gas-based power plants on the western coast has increased power generation over the last few months following a drop in international spot LNG (liquefied natural gas) rates. India has roughly 25GW of gas-fired power plants, of which 14.3 GW are stranded. The operating plants reported an increased average PLF (plant load factor) of 28.63% in July, rising from 22.13% in January. A further drop in domestic gas prices is likely to boost generation at power plants further.