Govt cuts price of natural gas used for making fertilizer, supplying CNG

Price of natural gas, used for generating power, making fertiliser and supplying CNG, was cut on Friday by 18 per cent to USD 2.5 per million British thermal unit, fourth reduction in 18 months.

Rate of natural gas produced from existing fields of state-owned Oil and Natural Gas Corp (ONGC) and Reliance Industries has been cut to USD 2.5 per mmBtu for a 6-month period from October 1, from USD 3.06 per mmBtu currently.

As per the new gas pricing formula approved by the NDA-government in October 2014, gas prices are to be revised every six months and the next change is due on April 1.

The reduction in natural gas prices would mean lower raw material cost for compressed natural gas (CNG) and natural gas piped to households (PNG) and would translate into reduction in retail prices. It would also mean lower feedstock cost for power generation and manufacturing of fertilisers.

Rates were last cut by 20 per cent to USD 3.06 from April1. The price of gas between October 1, 2015 and March 31, 2016 was USD 3.81 per mmBtu and USD 4.66 in prior six month period.

“The price of domestic natural gas for the period October 1, 2016 to March 31, 2017 is USD 2.50 per mmBtu on Gross Calorific Value (GCV) basis,” said a notification issued by the Oil Ministry’s Petroleum Planning & Analysis Cell.

The reduction will hit producers like state-owned Oil and Natural Gas Corp (ONGC) as well as central government whose earnings from royalty and income tax will dip by about Rs 800 crore during the remainder of the fiscal, according to industry estimates.

Every dollar dip in gas price results in Rs 4,000 crore hit in revenue of ONGC on an annual basis. The current price reduction would hit its revenue by about Rs 1,000 crore.

Government also announced a sharp reduction in cap price based on alternate fuels for undeveloped gas finds in difficult areas like deepsea which are unviable to develop as per the existing pricing formula.

The cap for October 1, 2016 top March 31, 2017 will be USD 5.3 per mmBtu, down from USD 6.61 in April 1 to September 30 period, PPAC notification said.