Oil ministry proposes unit price of $6.7 for natural gas

The ministry petroleum and natural gas has proposed an increase in the sale price of natural gas sold by both state-owned and private sector oil and gas producers to $6.7 per mmBtu against the $8-8.5 per mmBtu proposed by the Rangarajan Committee.

In a cabinet note, the petroleum ministry today proposed an immediate hike in the price of natural gas produced by state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). For private sector Reliance Industries Ltd (RIL), however, the proposed hike would be effective from the next financial year, ie, 1 April 2014.

The ministry wanted the new price to apply to all domestically-produced gas effective this year itself except in cases where the government has a production sharing contract (PSC) or it has a previously fixed tenure for the rate.

The government at present has a PSC with Reliance Industries for its Krishna-Godavri offshore block in the east coast that sets the gas price at $4.205 per mmBtu and the new guidelines would mean that RIL would have to wait till 1 April 2014, when the present PSC expires.

The new pricing formula would apply to all forms of natural gas, including conventional, shale and coal-bed methane (CBM), and across all consuming sectors.

The petroleum ministry wanted the price of domestically-produced gas to be fixed at an average of international hub prices and cost of imported LNG instead of a modified mechanism of market-led price discovery.

The ministry also favoured quarterly revision of gas prices instead of the monthly price revision proposed by the Rangarajan Committee.

The $6.7 per mmBtu price for gas is arrived at on the basis of the average April-June rate of $6.775 per mmBtu.

Meanwhile, a $1 per unit hike in the price of natural gas would increase the cost of fertilizer production in the country by Rs3,155 crore per annum at the current level of production of 23 million tonnes of urea. This is expected to increase to Rs4,144 crore a when urea production in the country is expected to touch 32 million tonnes in 2017-18.

For the power sector, a $1 per mmBtu increase in gas price would push up cost per annum by about Rs10,040 crore at the production level of 28,000 MW.

RIL had earlier suggested that the price of gas from its KG-D6 gas block be brought on par with the price of LNG that India imports on a long-term contract from Qatar. India pays 12.67 per cent of the international oil rate plus $0.26 per mmBtu to Qatar. At $100 per barrel oil rate, this works out to a gas price of $12.93.