Domestic natural gas price falls to $2.5 per unit

The government on Friday set the new domestic natural gas price at $2.5 per unit from October onwards, down 18 per cent from $3.06 per million British thermal unit.

Domestic natural gas price is revised after every six months based on a formula that the government introduced in 2014, taking into account various international prices. However, due to a drop in international prices, the domestic prices, too, dropped since then.

“The price of domestic natural gas for the period from October 1, 2016 to March 31, 2017 is $2.5 per mmBtu on Gross Calorific Value Basis,” said a notification by the Petroleum Planning and Analysis Cell. The price ceiling for ultra deepwater, deepwater and high-pressure high-temperature gas, too, dropped 19.8 per cent to $5.3 per unit, from $6.61 per unit during the previous six months. After coming up with the new formula, the domestic natural gas price was first announced in November 2014, which stood at around $5.05 per unit then.

According to reports, ONGC Chairman D K Sarraf has approached the government seeking a floor price for natural gas, following the consistent drop. The average cost of gas production for ONGC is about $3.5 per unit. When asked about it, Petroleum Minister Dharmendra Pradhan said, “I have read Mr Sarraf’s statement. But when the government decided the formula, all these were taken into account. Definitely, the pricing will be according to the formula.” For a drop of one dollar in domestic natural gas prices, ONGC loses around ~4,200 crore in revenue and ~2,400 crore in profit annually. As a result, all the upstream majors, such as ONGC, Oil India, and Reliance Industries, are expected to report lower revenue from gas because of this.

However, the move may benefit downstream companies such as GAIL and city gas distribution companies such as Indraprastha Gas, Mahanagar Gas and Gujarat Gas, because of lower raw material pricing. This may also help the government in reducing the fertiliser subsidy burden.