Natural gas price in India seen falling 17% to $3.15 in April

Natural gas price in India is estimated to decline 17 per cent in April to $3.15 per million British thermal units (mmBtu) under current trends. Gas prices may rise marginally to $3.32 per unit in the second quarter of fiscal 2016 and further to $3.42 per unit in the third quarter (October-December), as per the new pricing formula approved by the government.

The price of domestically-producenatural gas in India currently ruling at $3.82 per mmBtu is already among the lowest in the world and way down the levels in neighbouring countries and a further fall in prices would upset the economy of gas producing companies, say analysts.

The Petroleum Planning and Analysis Cell (PPAC) has fixed the price of natural gas for the period 1 October 2015 to 31 March 2016 at $3.82 per mmBtu on the basis of gross calorific value (GCV).

As per the revised gas pricing formula approved by the NDA government in October 2014, natural gas prices are to be determined on a semi-annual basis and calculated on the basis of a volume weighted average of rates in gas surplus nations such as the US, Canada and Russia, based on the twelve-month trailing average price with a lag of three months.

Calculated on the basis of benchmark prices from 1 January to 31 December 2015, gas price for the period April 2016 to September 2016 is likely to be about $3.15 per million British thermal unit as against $3.82 currently, analysts point out.

This, they say, could further dampen deep-sea discoveries of natural gas in India as at this price no investor will opt for gas exploration in India while existing companies will think again before extending exploration activities.

Even if the government switches to the formula based on net calorific value (CV), the price of natural gas is likely to fall to $3.50 per mmBtu from $4.24 at present, analysts point out.

While private sector explorer Reliance Industries has been voicing concern over the very low prices fixed for natural gas, state-run explorer Oil and Natural Gas Corporation of India (ONGC) has of late joined the chorus for remunerative prices for development of numerous existing discoveries.

ONGC chairman and managing director Dinesh K Sarraf last week stated that developing finds in the firm's Krishna Godavari (KG) basin block KG-DWN-98/2 (KG-D5) was economically unviable at current price.

He said the company has asked the government to raise the rates to make developing the explorations economically viable.

Gas price in India is already the lowest compared to $6.5 in Indonesia, $8 per mmBtu in Thailand and Malaysia, $9 per mmBtu in China and $10.5 in the Philippines, according to Goldman Sachs.

This, according to Goldman Sachs, has resulted in Indian producers potentially losing $2 billion annually in value added assuming they can replace imports entirely.

''Indian domestic natural gas prices that are linked to prices in gas surplus economies remain materially below the costs to develop marginal and deep-water fields and hence do not incentivise exploration and production capex,'' Goldman stated in a recent report.