CNG rates set to go up as govt hikes gas prices by 62%

KEY STORY

• The government on Thursday hiked by 62 per cent the price of natural gas that is used to produce electricity, make fertilisers and turned into CNG to use as fuel in automobiles and cooking gas for household kitchens.

• This is the first increase in rates since April 2019 and comes on back of firming benchmark international prices but does not reflect the spurt in spot or current price of liquefied natural gas (LNG) witnessed during the last couple of weeks.

• The oil ministry”s Petroleum Planning and Analysis Cell (PPAC) said the rates paid for gas produced from fields given to state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) will be USD 2.90 per million British thermal unit for the six-month period beginning April 1.

• Simultaneously, the price for gas produced from difficult fields such as deepsea, which is based on a different formula, was hiked to USD 6.13 per mmBtu from the current USD 3.62 per mmBtu.

• This is the maximum price that Reliance Industries Ltd and its partner BP plc are entitled to for the gas they produce from deepsea blocks such as KG-D6.

• The increase in gas price is likely to result in a 10-11 per cent rise in CNG and piped cooking gas rates in cities such as Delhi and Mumbai, industry sources said.

• It will also lead a rise in 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.

• The new formula takes into account the volume-weighted annual average of the prices prevailing in Henry Hub (US), National Balancing Point (the UK), Alberta (Canada), and Russia with a lag of one-quarter.

CONCLUSION

• The rate at the first revision, using the new formula, came to USD 5.05 but in the subsequent six-monthly reviews kept falling till it touched USD 2.48 for April 2017 to September 2017 period.

• Subsequently, it rose to USD 3.69 in April 2019-September 2019 before being cut in subsequent rounds to USD 1.79.