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India Hikes Natural Gas Price For The First Time in 3 Years

For October-March 2017-18, India has raised the price of natural gas to $2.89 per mmBtu. This price is the first hike in three years after seven straight cuts in the price of the gas produced at the domestic fields. This includes the KG-D6 field of Reliance Industries, the fields of Oil and Natural Gas Corp and Oil India Ltd. Before, the price of the natural gas produced at the domestic fields in the preceding six-month period to September was cut to $2.48 per million metric British thermal units, defying the expectations of a higher price.

Government has sharply raised the cap on premium price to $6.3 per mmBtu from $5.56 per mmBtu for the natural gas produced from difficult fields. This rise is apparently in line with the rising benchmark reference rates in major global markets.

On October 2014, the government had approved a new formula to set the price of the natural gas produced at the domestic fields and revise it every six months based on the movement in prices in US, UK, Canada and Russia. The producers revised the price with a lag of one-quarter and the natural gas price continuously fell in India since the application of the new formula and had reduced to less than half of the $5.05 per mmBtu fixed in October 2014.

Fertiliser and power companies also import LNG (liquefied natural gas) in addition to buying the domestic gas and pool the prices to calculate their overall costs. This may provide some cushion to their margins, as they would look to increase the mix of imported LNG, depending on its prices in the international open markets.

The gas producers can charge market-based prices for the premium price, within the specified cap for the gas produced at deep offshore fields or high-pressure high-temperature fields, which became operational January 2016 onwards.

 

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