India slashes natural gas price by 16% to $4.24 per mmBtu

For the remaining part of the current financial year beginning 1 October, natural gas in the country will cost $4.24 per million British thermal units (mmBtu), 16 per cent lower than the current $5.50 per mmBtu.

According to the new formula approved by the government in October last year, the price of natural gas will fall to $4.24 per million British thermal unit on net calorific value (NCV) basis from the current $5.50 per mmBtu.

On the gross calorific value (GCV) basis, the new gas price for 1 October to March 31 will be $3.82 per mmBtu compared to $4.66 at present.

The price cut, the second ever since 1 April this year, will impact the revenue of producers like Oil and Natural Gas Corp (ONGC ) and Reliance Industries, while it will benefit users in the power and fertiliser sector in the form of lower feedstock cost.

In October last 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 US / Mexico, Canada and Russia and had set a six-month period for revision of prices based on market rates.

The government had, earlier fixed a price of $4.2 per mmBtu for domestically produced gas and this was found to be unviable, especially in the case of deep-seal exploration.

The new gas price formula is based on the weighted average price at Henry Hub of the US, National Balancing Point of the UK, rates in Alberta (Canada) and Russia with a lag of one quarter.

So, the rates for 1 April to 30 September period were based on the average price at the international hubs during January to December 2014.

The new formula had initially raised the producer price of natural gas in the country by about 33 per cent to $5.61 per mmBtu for a period up to 31 March 2015 from the earlier price of $4.2 per mmBtu.

Even at the current price of $5.61 per mmBtu, gas price in India is already among the lowest in Asia Pacific.

China pays explorers $11.9 per mmBtu rate for new projects while Indonesia and the Philippines prices the fuel at $11 and $10.5, respectively. Thailand prices gas from new projects at $8.2 per mmBtu.

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

India sells gas from offshore fields in Myanmar, where ONGC and GAIL have stake, to China for $7.72 per unit.