Natural gas price cut to lower CNG, PNG prices by up to Rs3 per unit

The government's decision to reduce the price of domestically-produced natural gas by 18 per cent to $3.82 per million British thermal units (mmBtu) could lead to a reduction in the retail price of compressed natural gas (CNG) by up to Rs3 per kg and that of piped natural gas (PNG) by Rs2.3 per unit, according to research and ratings agency India Ratings.

CNG is currently priced at Rs38 per kg in Delhi while PNG costs Rs25.37 per standard cubic meter (scm). This could come down by Rs2.8-3.0 per kg and by Rs2.1-2.3 per kg, respectively, according to India Ratings. 

"India Ratings expects the benefit of lower gas prices to continue to be passed on to the consumers. It further expects Rs2.1-2.3 per scm cut in PNG prices and Rs2.8-3.0 per kg cut in CNG prices," the Fitch Group entity said in its special report on the gas price revision.

While the price of diesel, the alternate fuel for CNG, declined by 8 per cent to Rs44.45 per liter between April and September 2015, CNG prices remained unchanged, making the clean fuel less competitive against diesel.

The expected reduction in price would make CNG up to 45 per cent more competitive than diesel. PNG would be 2 per cent more competitive than subsidised LPG.

India Ratings also expects the 18 per cent reduction in the price of natural gas to cost the two major domestic gas producers - Oil India Limited (OIL) and Oil and Natural Gas Corporation Limited (ONGC) - Rs120-130 crore and Rs1,080-1,150 crore, respectively, during the second half of the current financial year.

A senior ONGC executive had said on Wednesday the gas price cut would impact its profit by Rs1,059 crore. In the mid-stream segment, Gail (India) Limited would see Rs1,790-1,900 crore lower trading revenue from the sale of domestic gases during October 2015 to March 20126.

The ratings agency also said it expects the benefit from reduced gas price would be partly offset by the near 6 per cent depreciation in rupee value during April-September 2015.

The net impact of the reduced domestic gas prices in rupee terms would be nearly 11-16 per cent.

This is the second domestic gas price reduction and is driven by the decline in average gas prices prevalent at the reference hubs over the period July 2014-June 2015.