Domestic gas price hiked to $2.9 per mBtu, ceiling raised to $6.3 per mBtu

Domestic gas price hiked to $2.9 per mBtu, ceiling raised to $6.3 per mBtu


The price of domestic-produced has been hiked to $2.9 per million British thermal units (mBtu) for the October 2021-March 2022 period on Thursday. The ceiling price of produced from deepwater, ultra-deepwater, and high pressure-high temperature (collectively called difficult) discoveries has also been hiked to $6.13 per mBtu.

These prices have almost doubled from the price determined by the government for the April-September 2021 period. Domestic gas price stood at $1.79 per mBtu, while the ceiling price for difficult gas stood at $3.62 per mBtu during this period. This will mean more expensive cooking through piped and transport through higher compressed natural gas.

The hikes follow a firming up of gas prices on global benchmarks that dictate domestic rates.

Since 2014, domestic gas prices have been determined by a formula that takes into account the weighted average of natural gas prices at global gas hubs. The ceiling price of gas from difficult discoveries is linked to the landed price of alternative fuels.

Both these prices move largely in the same direction.

Domestic gas prices are based on the weighted average price of natural gas that is prevalent in benchmark markets over a three-month period. This price is then adopted by the Indian government for the domestic market after a lag of three more months.

This means that the gas price for the six-month period between October 2021 and March 2022 is determined based on the global prices from April-June 2021.

The current prices put significant pressure on upstream companies that are in the business of exploring and producing natural gas. Oil and Natural Gas Corporation (ONGC), Oil India, Reliance Industries (RIL), BP (formerly The British Petroleum Company), and Cairn Oil & Gas (a unit of Vedanta) are some of the prominent players that will benefit from a higher gas price.

Among projects that will benefit from the price hike will be RIL and BP’s R-Cluster, an ultra-deepwater gas field in block KG-D6, off the east coast of India.

ONGC’s KG-DWN-98/2 project will also be a big beneficiary of these firmed-up gas prices.

Cairn Oil & Gas, Vedanta’s oil and gas arm, too, stands to gain since it produces natural gas from its largely oil-bearing block in Rajasthan.

“Domestic companies are comfortable with natural gas prices at $3.5 per mBtu or above. This may happen in the April 1-September 30, 2022, price revision,” said Sabri Hazarika, senior research analyst at Emkay Global Financial Services.

“A price of $7-8 per mBtu is remunerative for gas produced from difficult discoveries. These price levels are also expected to be attained in the April 1-September 30, 2022, price revision,” he added.

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