Natural gas prices up 40%; CNG, PNG to cost more

Prices of natural gas on Friday increased 40 per cent to record levels, in step with the global firming up of energy rates. Natural gas helps to generate electricity, among other things. It is also converted into CNG and piped to household kitchens for cooking purposes.

A steep increase in price of natural gas is likely to make CNG and piped natural gas (PNG) cost more, the prices of which have already risen more than 70 per cent in the last year. Moreover, this is also the third increase in natural gas rates since April 2019.

Similarly, the cost of producing fertiliser will also go up. However, an increase in rates is unlikely as the government subsidises fertilisers.

The rate paid for gas produced from oil fields was increased to $8.57 per million British thermal units from the current $6.1, said the Oil Ministry's Petroleum Planning and Analysis Cell (PPAC) in a statement. Interestingly, the gas produced from old fields also makes up for about two-thirds of all gas produced in India.

India, earlier this month, had to pay double for Liquified Natural Gas, after shipments from Russia’s Gazprom subsidiary for India, were diverted to Europe. Due to a sharp increase in the international price of natural gas, domestic car manufacturers have also dropped their production target for CNG-powered vehicles and are expecting local rates to jump further in the next round of revision.

Simultaneously, the price of gas from newer fields like 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. These are the highest rates for regulated/administered fields like ONGC's Bassein field off the Mumbai coast and free-market areas such as the KG basin.

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 like the US, Canada, and Russia in one year with a lag of one quarter. Therefore, the price for October 1 to March 31 is based on the average price from July 2021 to June 2022, when global rates shot through the roof.