The government has increased the price of domestic natural gas by 6 per cent to $3.07 per mmbtu as per gross calorific value for the April-September 2018 period from $2.89 per mmBtu during October 2017-March 2018 period.
The price ceiling for gas produced from difficult fields has also been revised upwards by 7.6 per cent from $6.30 per mmbtu to $6.78 per mmbtu.
While the prices for gas produced from domestic fields has been increased only the second time since the new-formula based pricing was introduced in 2014, price ceiling for gas from difficult fields has been increased thrice out of the four revision since 2016.
The government revises both the prices twice a year.
The domestic price is determined by considering market-linked gas prices in the US (Henry Hub), the UK (New Balancing Point), Canada (Alberta Gas) and Russia (Russian Natural Gas).
Price for difficult gas is determined through variables such as landed price of fuel oil and liquefied natural gas, and weighted average price of substitute fuels such as coal and naptha.
While the increase in price — a long-pending demand — will increase profitability of gas producers, a Care Ratings report notes that the move will increase the manufacturing cost of urea and petrochemicals which use gas as a feedstock. In addition, consumers of compressed natural gas and piped natural gas may also be affected due to an expected increase in prices.
“Increase in price of Natural gas will also affect the margins of the power sector and sponge iron industry where it used for the generation of energy. Rise in the domestic natural gas price will result in increasing the WPI marginally as crude petroleum and natural gas has a 2.46 per cent weight and in that natural gas has a 0.46 per cent weight,” the report added.