In a bonanza for gas producers, Reliance Industries is set to get a record price of around USD 10 per MMBtu for the KG gas, while state-owned ONGC is likely to fetch more than double the rate for its Mumbai High and other fields, sources said.
The government-dictated price for natural gas produced in the country is to be revised on April 1 and factoring in the spike in energy prices witnessed last year, the rate paid for gas produced from fields given to state-owned Oil and Natural Gas Corporation (ONGC) on nomination basis is likely to rise to USD 5.93 per million British thermal units from current USD 2.9.
Simultaneously, difficult fields like the ones in Reliance and its partner bp plc operated D6 block in KG basin, are likely to get USD 9.9-10.1 price compared to the current rate of USD 6.13, two sources aware of the matter said.These are the highest rates for administered/regulated fields (like ONGC’s Bassein field off the Mumbai coast) and free-market areas (such as the KG basin). Also, this will be the second increase in rates since April 2019 and comes on the back of firming benchmark international prices.
The government sets the price of gas every six months — on April 1 and October 1 — each year based on rates prevalent in gas surplus nations such as the US, Canada and Russia in one year with a lag of one quarter. So, the price for April 1 to September 30 is based on the average price from January 2021 to December 2021. This is the period when global rates shot through the roofs.
The volume-weighted average of the price prevalent in a 12-month period in US-based Henry Hub, Canada-based Alberta gas, UK-based NBP and Russia gas are used to fix price for administered fields of ONGC and Oil India Ltd. For difficult fields like discoveries in deepwater, ultra-deepwater and high pressure-high temperature areas, a slightly modified formula is used by incorporating the price of LNG, which too had shot through the roof in 2021.Reliance-bp operated KG fields are classified as difficult fields.
The sources said the increase in gas price is likely to result in a rise in CNG and piped cooking gas rates in cities, such as Delhi and Mumbai. It will also lead to a rise in the cost of generating electricity but consumers may not feel any major pinch as the share of power produced from gas is very low. Similarly, the cost of producing fertiliser will also go up but as the government subsidises the crop nutrient, an increase in rates is unlikely.
For producers, this will be the first time in six years that they will get a remunerative price. ONGC had been incurring losses on the 65 million standard cubic meters per day of gas it produces from domestic fields shortly after the government in November 2014 introduced a new gas pricing formula that had “inherent limitations” as it was based on pricing hubs of gas surplus countries such as the US, Canada, and Russia.
The sources said ONGC had in several communications to the government has stated that the break-even price to produce gas from new discoveries was in the range of USD 5-9 per MMBtu and that for old fields such as Mumbai High and Bassein is about USD 3.6-3.7.The Congress-led UPA had approved a new pricing formula for implementation in 2014 that would have raised the rates, but the BJP-led government scrapped it and brought a new formula.
The new formula takes into account the volume-weighted annual average of the prices prevailing in Henry Hub (US), National Balancing Point (the UK), Alberta (Canada), and Russia with a lag of one-quarter.The rate at the first revision, using the new formula, came to USD 5.05 but in the subsequent six-monthly reviews kept falling till it touched USD 2.48 for April 2017 to September 2017 period.Subsequently, it rose to USD 3.69 in April 2019-September 2019 before being cut in subsequent rounds to USD 1.79.
