As energy prices grew globally, natural gas prices abruptly rose by 40% to record highs on Friday.
Costs for CNG and piped natural gas (PNG), which have already increased by more than 70% in the past year, are anticipated to grow with a sharp price hike. Additionally, since April 2019, this is the third time that natural gas prices have increased.
The rise in the price of Natural Gas
According to the Government, the third rate rise since April 2019 results from higher energy prices on the international market.
The price paid for gas generated from old fields, which make up about two-thirds of all gas produced in the country, was raised by a directive from the Petroleum Planning and Analysis Cell (PPAC) of the Oil Ministry between $6.1 per million British Thermal Units (MMBtu) to $8.57 per million BTUs.
Similarly, the cost of gas from challenging and recent fields, such as those in the deep water D6 block in the KG basin managed by Reliance Industries and its associate bp plc, was increased from USD 9.92 to USD 12.6 per MMBtu.
These are the highest pricing for regulated fields and free-market areas, such as ONGC’s Bassein field off the coast of Mumbai (such as the KG basin). The sharp jump in gas costs is likely reflected in higher charges for compressed natural gas (CNG) and piped natural gas (PNG), which have increased by over 70% in the last year. The Government sets gas prices on April 1 and October 1 of each year, with a one-quarter lag, based on rates standard in countries with gas surpluses like the US, Canada, and Russia.
The prices being made to Indian gas providers now are the highest ever.
The sharp rise in gas prices at international gas hubs was the initial cause of the domestic gas price hike. Gas production was a loss-making prospect for most Indian upstream producers’ fields at introductory pricing, so increasing gas prices is a comfort to them.
The gas produced by ONGC is used to supply CNG and piped cooking gas in urban areas.
The price increase will also increase the cost of producing electricity. Still, since natural gas accounts for a tiny part of electricity production, consumers may not experience a remarkable cost increase.
Similar to how the price of creating fertilizer would climb, the rate of increase is improbable because the Government subsidizes the crop nutrient.
Prices have been updated to reflect price changes for important benchmarks like Russia Gas., Canada’s Alberta Gas, the US Henry Hub, and the UK’s NBP. The cost of liquefied natural gas (LNG) is also surveyed, which increased in 2021 due to a shortage and increased demand spurred on by the devastation of the pandemic.
Domestic rates are set with a one-quarter lag based on the volume-weighted annual average price in these worldwide benchmarks. As a result, the pricing for April 1 to September 30 is derived from the average price between January and December 2021. During this time, global interest rates skyrocketed.
A slightly updated method is used for challenging fields, like finds in deep water, ultra-deep water, and high pressure/high-temperature regions, by factoring in the price of LNG, which also skyrocketed in 2021.
Challenging fields are those in that Reliance-BP operated. These field operators are allowed to find the market price, but this is constrained by a cap set for the challenging fields twice a year.
This marks the first time producers will receive a fair price in six years.
This month, after the Russian affiliate of Gazprom, diverted shipments intended for India to Europe, India had to spend twice the price of liquefied natural gas. Due to the rise in the price of natural gas on the international market, local automakers have also lowered their production targets for CNG-powered vehicles. They predict further rises in average prices in the following round of adjustment.
The Government has created a panel to study the pricing methodology since raising gas prices could contribute to inflation, which has been persistently above the RBI‘s tolerance level for the past eight months.
Edited by Prakriti Arora