Natural gas prices hit lowest on record

Natural gas prices hit lowest on record

Natural gas prices hit lowest on record


Centre has cut gas price by 25% to $1.79 mmBtu; ONGC’s revenues to take a hit

New Delhi: Natural gas price in India touched the lowest rate on record after the government on Wednesday slashed the price by 25 per cent to $1.79, denting revenues of producers like ONGC.

The price of gas, which is used to generate electricity, make fertiliser and CNG for automobiles, has been cut to $1.79 per million British thermal unit for six months beginning October 1 from the current $2.39, an order of the Oil Ministry's Petroleum Planning and Analysis Cell (PPAC) said.

This is the third straight reduction in rate in one year. The price was cut by a steep 26 per cent to $2.39 in April. The rate paid to producers of new gas from difficult fields such as deepsea has also been cut to $4.06 per mmBtu from $5.61. Natural gas price is set every six months — on April 1 and October 1- each year based on rates prevalent in surplus nations such as the US, Canada and Russia.

The rate from October 1 is equivalent to the price paid to Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) prior to May 2020 when a formula based pricing was first introduced. While the cut in prices would mean widening of losses for India's top oil and gas producer ONGC, it may also lead to lower cost of production of electricity and CNG as well as lower piped natural gas prices.

ONGC, sources said, had posted Rs 4,272 crore loss on gas business in 2017-18, which is likely to widen to over Rs 6,000 crore in the current fiscal (April 2020 to March 2021), they said. ONGC has seen incurring losses on the 65 million standard cubic meters per day of gas it produces from domestic fields shortly after the government in November 2014 introduced a new gas pricing formula that had "inherent limitations" as it was based on pricing hubs of gas surplus countries such as the US, Canada, and Russia.

Sources said ONGC in a recent communique to the government has stated that the break-even price to produce gas from new discoveries was in the range of $5-9 per mmBtu. In previous years, loss from the gas segment was getting offset from the gain from the oil business. But with oil business itself coming under severe strain due to a sharp slump in benchmark prices, it has become difficult for the company to meet even the operating expenses, they said.

In May 2010, the government had raised the rate of gas sold to power and fertilizer firms from $1.79 per mmBtu to $4.20.

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