Gas price: Will Oil Ministry bite the bullet?

The Ministry for Petroleum & Natural Gas is caught between the devil and the deep blue sea as it gets set to announce the price for domestically produced gas for the first half of the new fiscal. If the Ministry goes by international cues, the price is all set to increase, even though this is a pre-election year.

Indications are that the government may play safe and go in for a marginal hike. The new price, which will come into effect from April 1, will be about $3.1 a unit (gas is measured in million British thermal units) from the current $2.89 a unit, and for deepwater produce $6.75 a unit, up from today’s $6.30.

Fuel bill to rise

Any increase will impact consumer household budgets as cooking fuel bills and electricity tariffs will go up.

Every dollar increase in gas price would lead an escalation of about 45-50 paise a unit in electricity rates; for piped natural gas, the increase could be around ₹2.6 per SCM (standard cubic metre). Once a premium fuel, piped natural gas today is cheaper than domestic LPG by almost ₹60 a cylinder.

However, PNG is being incentivised by the government, and the increasing demand for LPG is partially being met through imports, said an official. The increase in domestic gas price will also impact the price of transportation fuel — compressed natural gas — by about ₹3 a kg.

On October 18, 2014, when deciding on domestically produced gas pricing, the government had said, “The periodicity of price determination/notification shall be half-yearly. Prices would be announced 15 days in advance of the half-year for which it is applicable.”

Pricing freedom urged

According to industry trackers, if the government wants to attract investments in the oil and gas exploration sector, it has to give pricing freedom. “Today, foreign players in the industry are talking about India opportunities, but no one is signing the cheque, as they believe that the pricing is still controlled by the government,” a senior executive in an oil company told BusinessLine.

Even ONGC and Oil India Ltd have been seeking higher gas price to recover their costs. Besides, demand for gas is growing, with the government also pushing for a gas-based economy.

Today, almost 50 per cent of the gas requirement is met through imports — spot market and long-term contracts. The spot market price is in the range of $10-12 a unit and long-term is at $10-11 a unit. “The domestic gas price should be increased keeping this in mind,” said an oil explorer.

“There is a compelling case for the government to revisit the gas price formula that has been in place since October 2014,” said Debasish Mishra, Partner at Deloitte Touche Tohmatsu India LLP.

“Consumption dynamics in the Indian gas market as well as the global supply situation has changed in the past few years, and India must boost domestic production by offering better price to producers. This will safeguard gas consumers from wild volatility in global prices and save the country foreign exchange,” he said.

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