Natural gas prices rose 40% to record highs; Cng, Png to cost more


By PTI IST (Released)

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The rate paid for gas produced from old fields, which account for around two-thirds of all gas produced in the country, has been raised to $8.57 per million British thermal units from the current $6.1 , according to an order of the Ministry of Petroleum. Petroleum Planning and Analysis Unit (PPAC).

Prices for natural gas, which is used to generate electricity, make fertilizer and converted to CNG to power automobiles, rose 40% to record highs on Friday, alongside global energy tariffs firming.

The rate paid for gas produced from old fields, which account for around two-thirds of all gas produced in the country, has been raised to $8.57 per million British thermal units from the current $6.1 , according to an order of the Ministry of Petroleum. Petroleum Planning and Analysis Unit (PPAC).

Simultaneously, the price of gas from difficult and newer fields such as Reliance Industries Ltd and its partner bp plc exploited Block D6 offshore in the KG basin, was raised to 12.6 USD per mmBtu from 9 .92 USD, depending on the prescription.

These are the highest rates for administered/regulated fields (such as ONGC’s Bassein field off the coast of Mumbai) and open market areas (such as the KG basin).

In addition, this will be the third tariff increase since April 2019 and builds on firmer international benchmark prices. Gas is an input for the manufacture of fertilizers as well as for the production of electricity.

It is also converted to CNG and delivered to household kitchens for cooking purposes. A sharp increase in prices will likely result in higher prices for CNG and piped natural gas (PNG), which have increased by more than 70% over the past year.

The government sets the price of gas every six months – April 1 and October 1 – of each year based on the tariffs prevailing in gas-surplus countries such as the United States, Canada and Russia in one year. year with a one-quarter lag.

Thus, the price from October 1 to March 31 is based on the average price from July 2021 to June 2022. This is the period when global rates have exploded.

Since rising petrol prices have the potential to further fuel inflation, which has been stubbornly above the RBI’s comfort zone for the past eight months, the government has set up a committee to review the pricing formula.

The committee, under former planning commission member Kirit S Parikh, has been asked to come up with a “fair price for the end consumer” by the end of September, but the report is delayed.

In 2014, the government used prices in gas-surplus countries to arrive at a formula for locally produced gas. Rates under this formula were moderate and sometimes below the cost of production until March 2022, but rose sharply thereafter, reflecting the surge in global rates following Russia’s invasion of Ukraine.

The price of gas from old fields, which are mainly state-owned producers like ONGC and Oil India Ltd, more than doubled to $6.1 per mmBtu from April 1. Similarly, tariffs paid for gas from difficult fields such as Reliance’s deepsea KG-D6 rose to $9.92 per mmBtu from April 1 from $6.13 per mmBtu.

The panel was asked to recommend a fair price to end consumers and also to suggest a “market-oriented, transparent and reliable pricing scheme for India’s long-term vision of securing a gas-based economy” , according to an order of the Ministry of Petroleum.

The government wants to more than double the share of natural gas in the primary energy mix to 15% by 2030, from 6.7% currently.

The volume-weighted average of the price prevailing over a 12-month period in US-based Henry Hub, Canada-based Alberta Gas, UK-based NBP and Russian Gas is used to set prices fields administered by ONGC and Oil India Ltd.

For difficult areas such as discoveries in deep water, ultra-deep water and high-pressure-high-temperature areas, a slightly modified formula is used by incorporating the price of LNG, which had also exploded in 2021.

KG fields operated by Reliance-bp are classified as difficult fields. Sources said the gas price increase would likely lead to higher CNG and cooking gas tariffs in cities like Delhi and Mumbai.

It will also lead to an increase in the cost of electricity generation, but consumers may not feel a major pinch because the share of electricity generated from gas is very low. Similarly, the cost of producing fertilizers will also increase, but as the government subsidizes crop nutrients, an increase in rates is unlikely.

For producers, this will bring higher incomes.


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