Natural gas price set for steep rise

New Delhi: Prices of natural gas, which is used to generate electricity, make fertiliser and is converted into CNG to run automobiles, is likely to rise to record levels at the rate review scheduled this week, sources said.

The government-dictated price for natural gas produced in the country is to be revised on October 1. After factoring in the spike in energy prices witnessed in recent months, the rate paid for gas produced from old fields such as of state-owned Oil and Natural Gas Corporation (ONGC) is likely to rise to $9 per million British thermal units (mBtu) from current $6.1. Simultaneously, difficult fields like the ones in Reliance Industries Ltd (RIL) and its partner bp plc operated D6 block in KG basin, are likely to get around $12 mmBtu compared to the current rate of $9.92, two sources aware of the matter said.

These are the highest rates for administered/regulated fields (like ONGC's Bassein field off the Mumbai coast) and free-market areas (such as the KG basin). Also, this will be the third increase in rates since April 2019, and comes on the back of firming benchmark international prices. The government sets the price of gas every six months -- on April 1 and October 1 -- each year based on rates prevalent in gas surplus nations such as the US, Canada and Russia in one year with a lag of one quarter.

So, the price for October 1 to March 31, is based on the average price from July 2021 to June 2022. This is the period when global rates shot through the roof.

"The government has set up a committee to review the formula for pricing of domestically produced natural gas. It can for all practical reasons not revise prices on October 1, citing the pendency of issues before the committee," a source said. The committee, under former planning commission member Kirit S Parikh, has been asked to suggest a "fair price to the end-consumer", according to an order of the oil ministry. The panel, which includes representatives of the gas producers association as also producers ONGC and OIL, was asked to submit its report by the month-end but the same is likely to be delayed, sources said. It also has a member from private city gas operators, state gas utility GAIL, a representative of Indian Oil Corporation (IOC) and a member from the fertiliser ministry, the order said.