Oil ministry proposes hike in natural gas price to $6.7

The oil ministry has moved a Cabinet note to raise the price of natural gas produced by state-owned as well as private companies to $6.7, less than $8-8.5 hike previously expected.

In a note for the Cabinet Committee on Economic Affairs (CCEA), the ministry has proposed raising gas price for state-run firms, including Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL), immediately and that for private firms like Reliance Industries (RIL) from April 2014.

The three companies currently get $4.2 per million British thermal unit (mBtu) as the price of natural gas.

Sources said the hike in natural gas price by $1 would result Rs 3,155 crore per annum hit on fertiliser plants for producing 23 million tons of urea this fiscal and Rs 4,144 crore a year for 32 million tons of urea production from 2017-18.

The ministry wants the Rangarajan Committee recommendations - of pricing domestically produced natural gas at an average of international hub prices and cost of imported LNG instead of present mechanism of market discovery - be accepted with a minor modification.

Instead of the panel's suggestion of calculating gas price every month, the ministry has proposed notifying the gas price on a quarterly basis. The gas price based on average of April-June rates would come to $6.775 per mmBtu, much less than doubling of rates previously expected.

The impact of every US dollar increase in gas price would be about Rs 10,040 crore per annum on the power sector for 28,000 MW of electricity generating capacity.

Sources said the ministry wants the pricing formula proposed by the panel to apply to all forms of natural gas - conventional, shale and coal-bed methane (CBM). Also, the price determined shall be applicable to all consuming sectors uniformly.

They said it wanted the new pricing guidelines to apply from 2013 itself on all domestically produced gas barring cases where it is either governed by a definite formula prescribed in the Production Sharing Contract (PSC) or the government had previously fixed a tenure for the same.

This essentially meant that RIL would get the new price only from April 1, 2014, upon expiry of the fixed five-year term of current rate of $4.205 per mmBtu.

State-owned ONGC and OIL can, however, get the new rates this year itself for gas they produce from fields given to them on nomination basis by the government. Gas from nominated fields, called APM gas, was last revised in June 2010 to $4.2 from $1.79.

The Rangarajan panel suggested rates may also not apply to BG Group-operated Panna/Mukta and Tapti fields in the western offshore as the current rates of $5.57-5.73 per mmBtu for the fuel produced from these are derived from a pre-defined formula detailed in the PSC.

However, Cairn India's eastern offshore Ravva gas, which is currently priced at $3.5-4.3 per mmBtu, may be revised as per the committee recommendations.