Union Govt approved Near Doubling of Natural Gas Price Effective from 1 April 2013

The Union government on 27 June 2013 almost doubled the price at which natural gas is supposed to be sold to producers of power, fertilizer, minerals and steel.

The increase, in natural gas price was decided at a meeting of the Union cabinet, which is in line with the recommendations of a committee headed by C. Rangarajan, chairman of the Prime Minister’s economic advisory council, which had suggested a system that would price the fuel at 8-8.5 dollars per mmBtu. This will be the first revision in gas prices in three years. C. Rangarajan, formula uses long-term and spot liquid gas (LNG) import contracts as well as international trading benchmarks to arrive at a competitive price for India.

Now with the approval, the price of gas could go up to 8.4 dollars per million metric British thermal units (mmBtu), which would be effective from 1 April 2013 from the current domestic prices that range between 3.5 dollars and 5.73 dollars per mmBtu. The new price will be valid for 5 years at least.

The important thing is that the price will still be lower than that of imported natural gas, which costs around 14.17 dollars per mmBtu.

Effects of the Increase in Gas Price

• The increase in gas prices will directly benefit local producers such as RIL, ONGC and Oil India Ltd.
• It will likely result in a rise in power tariffs, the cost of urea—a key farm nutrient—and the price of compressed natural gas.
• The increase in gas price will encourage more investments in exploration and make smaller pools of gas economically viable to produce.
• Higher gas price will also increase cost of power generation and fertilizer production and the government will have to take care of that.
• As per the report by India Ratings and Research it is observed that increase to 6.775 dollars per mmBtu would mean an increase of 9 paisa/kwh (kilowatt-hour) on the total Indian power generation of 912 billion kwh, which would lead to an additional burden of 78 billion Rupees towards gas costs on gas-based power generation of 65 billion kwh.