Natural gas price for producers set to fall 20% to around $2.45 per mmBtu in October

Producer-price paid to domestic natural gas producers like state-owned Oil and Natural Gas Corp (ONGC) and private sector Reliance Industries is likely to fall 20 per cent to $ 2.45 per million British thermal units (mmBtu) in October as per the government's revised gas pricing formula.

Price of natural gas produced from existing fields of ONGC and RIL is likely to fall to $ 2.45 per mmBtu with effect from 1 October against $ 3.06 at present, a senior oil ministry official said.

This rate is on gross calorific value (GCV) basis. This will be the fourth reduction in last 18 months following the formula approved by the government in October 2014.

Domestic natural gas price for producers was last reduced on 1 April from $3.82 per mmBtu to $3.06 per mmBtu. On a net-calorific value (NCV) basis, the gas price was on that day cut to $3.4 per mmBtu from $ 4.24 previously.

On NCV basis, the new gas price is likely to be $2 .7 from 1 October.

As per the new gas pricing formula approved by the NDA- government in October 2014, gas prices are to be revised every six months and the next change is due on 1 October.

A reduction in producer prices of natural gas would mean lower retail prices for compressed natural gas (CNG) and natural gas piped to households (PNG) and would translate into reduction in retail prices.

This will be the fourth consecutive reduction in natural gas prices after the government revised the gas pricing formula liked to a volume weighted average of rates in gas surplus nations of the US, Canada and Russia, based on the 12-month trailing average price with a lag of three months.

The price of gas has declined by around 39 per cent since the implementation of the gas pricing formula in October 2014.

Natural gas price was first reduced to $3.82 per mmBtu from $4.66 on 1 October 2015.

The price cut on October 1, 2016 will put further pressure on finances of upstream producers who do not find the current rate incentivising enough to invest more in oil and gas hunt.

Under the formula, the cap on gas recovered from undeveloped gas finds in difficult areas like deep sea will also fall to around $ 5.2-5.3 per mmBtu from $ 6.61 currently.

The government had earlier this year approved marketing and pricing freedom for all undeveloped discoveries lying in difficult areas subject to a cap. The cap for 1 April to 30 September was $6.61 per mmBtu on GCV basis and $7.3 on NCV basis.