GAS PRICES SET TO FALL BE­LOW $4.2/MMBTU FROM OC­TO­BER 1

Resource Digest - - GAS -

Nat­u­ral gas prices in In­dia may fall be­low $4.2 per unit, from Oc­to­ber 1, a rate that was used last year to de­vise a new pric­ing for­mula to in­cen­tivise do­mes­tic ex­plo­ration. Us­ing pre­vail­ing price in gas sur­plus na­tions like the US, Rus­sia and Canada, the gov­ern­ment had in Oc­to­ber last year an­nounced a new pric­ing for­mula that led to rates ris­ing by about 33% to $5.61 per mil­lion Bri­tish ther­mal unit (mmbtu) for a pe­riod up to March 31, 2015 from the long-stand­ing price of $4.2. The rates, on net calorific value (NCV) ba­sis, dropped to $5.05 per mmbtu for six month pe­riod be­gin­ning April 1, 2015.

“Pre­lim­i­nary cal­cu­la­tions based on av­er­age price in the gas hubs stated in the for­mula in­di­cate that the rate from Oc­to­ber 1 is likely to be $4.16 or $4.17 per mmbtu on NCV ba­sis,” an Oil Min­istry of­fi­cial said.

On gross calorific value (GCV) ba­sis, the rate will be about $3.8 per mmbtu as com­pared to $4.66 cur­rently.

“Th­ese are pre­lim­i­nary cal­cu­la­tions and fi­nal num­bers may vary by a few cents but the gen­eral trend is that prices will fall,” he said.

The Oc­to­ber 1 price cut will be the sec­ond re­duc­tion in rates ever - the first be­ing on April 1.

While the cut will im­pact the rev­enue of pro­duc­ers like Oil and Nat­u­ral Gas Corp (ONGC) and Reliance In­dus­tries, it will bring gains for users in the power and fer­tiliser sec­tor in the form of lower feed­stock cost.

As per the mech­a­nism ap­proved in Oc­to­ber 2014, price of do­mes­ti­cally pro­duced nat­u­ral gas is to be re­vised ev­ery six months us­ing weighted av­er­age or rates preva­lent in gas-sur­plus economies of Us/mex­ico, Canada and Rus­sia to in­cen­tivise ex­plo­ration in deep-sea that wasn’t vi­able at $4.2 rate.

In­dian gas price is cal­cu­lated by tak­ing weighted av­er­age price at Henry Hub of US, Na­tional Bal­anc­ing Point of UK, rates in Alberta (Canada) and Rus­sia with a lag of one quar­ter.

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

The Oc­to­ber 1, 2015 to March 31, 2016 rate will be based on av­er­age of prices dur­ing July 1, 2014 to June 30, 2015. The cur­rent price of $5.61 per mmbtu is al­ready among the low­est in Asia Pa­cific.

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