The price of natural gas produced from difficult areas like deep sea KG-D6 block of Reliance Industries on Sunday was cut by a steep 18%, in line with softening of benchmark international gas prices, an official notification said. However, the price of gas that is largely used for making CNG for fueling automobiles or piping to households kitchens for cooking purposes will remain unchanged due to a price cap that is set at 30% less than market rates such as that paid to Reliance.
For the six-month period starting October 1, the price of gas from deep sea and high-pressure, high-temperature (HPTP) areas has been cut to USD 9.96 per million British thermal unit from USD 12.12, oil ministry’s Petroleum Planning and Analysis Cell (PPAC) said in a notification.
The government bi-annually fixes prices of the locally-produced natural gas — which is converted into CNG for use in automobiles, piped to household kitchens for cooking and used to generate electricity and make fertilisers.
Two different formulas govern rates paid for gas produced from legacy or old fields of national oil companies like Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL), and for newer fields lying in difficult-to-tap areas, such as deepsea.
Rates are fixed on April 1 and October 1 each year.
In April this year, the formula governing legacy fields was changed and indexed to 10 % of the prevailing Brent crude oil price. The rate was, however, capped at USD 6.5 per mmBtu.
Rates for legacy fields are now decided on a monthly basis. For September, the price came to USD 8.60 per mmBtu but because of the cap, the producers would get only USD 6.5 per mmBtu. For September, the price came to USD 9.2 per mmBtu but because of the cap, consumers will continue to pay ONGC and OIL USD 6.5.
Brent crude oil has averaged around USD 92 per barrel this month but rates will continue to be capped at USD 6.5.
Sources said the price for difficult area gas continues to be governed by the old formula that takes a one-year average of international LNG prices and rates at some global gas hubs with a lag of one quarter.
International prices had fallen in the reference period of July 2022 to June 2023 and so it will translate into lower prices for difficult fields, they said.
The price for gas from difficult fields was cut to USD 12.12 per mmBtu for the six month period beginning April 1 from a record USD 12.46 earlier.
The global spurt in energy prices after Russia’s invasion of Ukraine has led to rates of locally-produced gas climbing to record levels USD 8.57 per million British thermal unit for gas from legacy or old fields and USD 12.46 per mmBtu for gas from difficult fields between October 2022 and March 2023.
On April 1, prices of gas from legacy fields were slated to climb to USD 10.7 per mmBtu using the old formula. But the government changed the formula and put a cap to keep inflation under check.
Rates of CNG and piped gas for kitchens had risen by 70% because of the previous gas price hike and the price cap ensured the are reduced a bid and are not increased again.
The ceiling price covers the cost of production of producers while protecting consumers, particularly CNG users, kitchens using piped cooking gas and fertiliser plants which had grappled with soaring input costs.
India is aiming to become a gas-based economy with the share of natural gas in its primary energy mix targeted to rise to 15 % by 2030 from the existing level of around 6.3 %.
