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Natural gas prices hiked by 40% to record levels; CNG, PNG to cost more

Prices of natural gas, which is used to generate electricity, make fertiliser and is converted into CNG to run automobiles, were hiked by a steep 40% to record levels, in step with global firming up of energy rates.

The rate paid for gas produced from old fields, which make up for about two-thirds of all gas produced in the country, was hiked to $8.57 per million British thermal units from the current $6.1, according to an order from the Oil Ministry’s Petroleum Planning and Analysis Cell (PPAC).

Simultaneously, the price of gas from difficult and newer fields like the ones in Reliance Industries Ltd and its partner bp plc operated deepsea D6 block in KG basin, was hiked to $12.6 per mmBtu from $9.92, the order said.

These are the highest rates for administered/regulated fields (like ONGC’s Bassein field off the Mumbai coast) and free-market areas (such as the KG basin). Also, this will be the third increase in rates since April 2019 and comes on the back of firming benchmark international prices.

The government sets the price of gas every six months -- on April 1 and October 1 -- each year based on rates prevalent in gas surplus nations such as the U.S., Canada and Russia in one year with a lag of one quarter. So, the price for October 1 to March 31 is based on the average price from July 2021 to June 2022. This is the period when global rates shot through the roof.

As higher gas prices can potentially 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 government wants to more than double the share of natural gas in the primary energy basket to 15% by 2030 from the current 6.7%.

Sources said the increase in gas price is likely to result in a rise in CNG and piped cooking gas rates in cities such as Delhi and Mumbai.

It will also lead to a rise in the cost of generating electricity but consumers may not feel any major pinch as the share of power produced from gas is very low. Similarly, the cost of producing fertiliser will also go up but as the government subsidises the crop nutrient, an increase in rates is unlikely. For producers, it will bring in higher revenues.