Govt cuts domestic natural gas price by 26% for first half of FY21

On Tuesday, the government cut the domestic price of natural gas from April to September to $2.39 per million British Heat Unit (HUU), the lowest level in six years since the Narendra Maudie government introduced the new price formula in November 2014.


The quantity of gas produced from complex fields will be 5.61 million Btu, expressed on the basis of the calorific value. These price caps apply to deep and ultra deep water high pressure and high temperature areas, including the undeveloped fields of Reliance Industries on Block KG-D6 in the Eastern Offshore.


On the other hand, according to the Petroleum Planning and Analysis Group (PPAC), the price of most of the natural gas produced in the country, including by companies such as Oil and Natural Gas Corporation and Oil India, will increase by 26 percent in six months to $2.39 per unit, compared to $3.23 per unit for the period from October 2019 to March 2020.

In October-March, the price of the complex field was $8.41 per million Btu. Previously, the lowest price in six years was $2.48 per MBTE for the period April to September 2017.


After coming to power in 2014, the Maudie government gave up the price formula proposed by a group led by K. Rangarajan, which is based on the average price of the net exporters of LNG to India and the tariff sent by the global gas producers. Instead, a new pricing system was introduced in November 2014, based on the average tariff of exporting countries such as the United States, Great Britain, Canada and Russia.

The new price structure makes geological prospecting definitively unprofitable for domestic producers. In view of the fall in international prices, the government should have considered lowering the ceiling in order to increase production. Anything less than US$3 per unit will make production more difficult, said a private oil and gas official.


According to the government, gross natural gas production in February 2020 was 2.341 million MMSCM (million cubic metres), or 8.8% less than in the same month of the previous year. Total gross natural gas production of 28,769 million MBM in the 20th century The financial year prior to February was 4.3% lower than the corresponding period in the previous year.


In addition to falling prices, the current blockade is likely to make it more difficult to do business with weaker demand. According to the Emkay report, the current shutdown has led to a 15-20% drop in demand as most plants in sectors other than fertilizer, power generation and refineries have closed down. GAIL could reach 15-20 million standard cubic meters per day (mcm) at standstill, while the transmission volume could drop to 10-15 million mcm per day, according to the report.


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