Natural Gas price cut by 18 Percent, to $3.82 per Unit

The price cut today is the second reduction in rates ever – the first being on April 1.

The reduction will squeeze profit margins at explorers such as Reliance Industries and state-owned ONGC, while benefiting power producers and fertilizer makers.

“Gas prices going below $4 per million Btu will be a significant dampener for the domestic E&P industry, which may result in a tepid response from bidders during the forthcoming rounds of New Exploration & Licensing Policy”, K Ravichandran, senior vice president at analysts ICRA, said recently.

India reviews the price of gas half-yearly, using a formula capturing global trends.

The price of domestic natural gas is decided based on a formula approved by Modi-government in October past year, which is linked to global indices.

“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 mmBtu on GCV basis”, the ministry’s Petroleum Planning and Analysis Cell said.

The rates, on net calorific value (NCV) basis, dropped to Dollars 5.05 per mmBtu for six month period beginning April 1, 2015.

In October previous year, the government had approved a mechanism for determining the price of domestically produced gas using the weighted average of rates prevalent in gas-surplus economies of the United States / Mexico, Canada and Russian Federation and had set a six-month period for revision of prices based on market rates.

The new prices will be for the October to March period.

On a net calorific value, gas prices have been reduced to $$4.24/unit from $5.16. Gas producers ONGC and Oil India fell as much as 1.9 percent and 3.6 percent respectively, while Reliance rose 1.2 percent.

The only nations with lower rates than prevailing price are Vietnam (USD 5.2) and Malaysia (USD 5).

Gas from offshore fields in Myanmar, where Indian firms ONGC and GAIL have stake, are sold to China for Dollars 7.72 per unit.