India's government has cut the price of natural gas being produced by state-owned and private sector players by 12.5% to $3.23 per million British thermal units, its first such cut in almost three years.
The reduced gas price will be in effect for six months starting from 1 October until the end of March next year, based on the government’s gas-pricing formula that is revised twice a year.
The new price is 12.5% lower than the $3.69 million Btu price, which companies like Oil & Natural Gas Corporation (ONGC), Oil India (OIL) and other smaller private sector operators earned during the past two financial quarters.
The new gas price will apply to gas produced from existing onshore and shallow-water fields but not to deep-water and other difficult gas fields that have not yet come on stream.
Similarly, the government has also reduced the price of gas produced (or yet to be produced) from difficult and deep-water fields to $8.43 per million Btu, as against the previous price of $9.32 per million Btu, a government notification claimed.
Prices of domestically produced natural gas is set every six months — on 1 April and 1 October each year, based on a gas pricing formula that considers the average rates in gas exporting countries such as the US, UK, Canada, and Russia.
Industry experts have suggested that the new gas price is likely to impact the top line for many state-owned players, including ONGC and OIL.
Analyst CARE Ratings recently said: “Upstream oil and gas exploration companies will not benefit with the decrease in gas prices as it will lead to low earnings due to decline in per unit realisation in the natural gas segment.”
India currently produces around 90 million cubic metres per day of gas, and the government wants to be able to double that output by 2022 to go some way towards reducing its dependence on costly imported liquid fuels.
