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The Ministry of Petroleum and Natural Gas has slashed the price of domestically produced natural gas to $1.79 per million British thermal units (mBtu) for the October 2020 to March 2021. This is the third consecutive cut in price of domestically produced natural gas in the country. It is also the first time that the price has gone below $2 per mBtu. The price ceiling for natural gas produced from difficult (High Pressure-High Temperature, Deepwater and Ultra Deepwater discoveries) fields was also cut to $4.06 per mBtu.
For consumers of piped natural gas (PNG) and compressed natural gas (CNG), the price cut is a boon. It is expected that City Gas Distribution (CGD) companies like Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) would be passing on the benefits of the price cut. Analysts estimate a cut of ₹1-3 per standard cubic meters (SCM) in tandem with the lowering of natural gas price.
But the price reduction adversely affects the earnings of oil and gas exploration and production companies such as Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). It also affects gas transportation companies such as GAIL (India) Ltd who get an ad valorem tariff on every molecule of gas that moves in their pipelines.
To stay afloat, the domestic oil and gas exploration sector wants a floor price for natural gas in the country. According to senior industry executives, the public sector undertaking oil exploration companies have sought a floor price of $4.5 per mBtu.
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