Oil Min proposes gas price hike to $6.7

Oil Ministry has moved a Cabinet note to raise the price of natural gas produced by state-owned ONGC and OIL as well as private firms like Reliance Industries to USD 6.7, less than USD 8-8.5 hike previously expected.

In a note for the Cabinet Committee on Economic Affairs (CCEA), the ministry has proposed raising gas price for state- run firms immediately and that for RIL from April 2014, sources privy to the development said.

ONGC/OIL and RIL currently get USD 4.2 per million British thermal unit as the price of natural gas.

The ministry wants Rangarajan Committee recommendation of pricing domestically produced natural gas at an average of international hub prices and cost of imported LNG instead of present mechanism of market discovery be accepted with a minor modification.

Instead of Rangarajan panel's suggestion of calculating gas price every month, the ministry has proposed notifying the gas price on a quarterly basis. The gas price based on average of April-June rates would come to USD 6.775 per mmBtu, much less than doubling of rates previously expected.

Sources said the hike in natural gas price by USD 1 would result Rs 3,155 crore per annum hit on fertiliser plants for producing 23 million tons of urea this fiscal and Rs 4,144 crore a year for 32 million tons of urea production from 2017-18.

The impact of every US dollar increase in gas price would be about Rs 10,040 crore per annum on the power sector for 28,000 MW of electricity generating capacity.
Sources said ministry wants the pricing formula proposed by the panel to apply to all forms of natural gas - conventional, shale and coal-bed methane (CBM). Also, the price determined shall be applicable to all consuming sectors uniformly.

They said it wanted the new pricing guidelines to apply from 2013 itself on all domestically produced gas barring cases where it is either governed by a definite formula prescribed in the Production Sharing Contract (PSC) or the government had previously fixed a tenure for the same.

This essentially meant that RIL would get the new price only from April 1, 2014 upon expiry of the fixed five-year term of current rate of USD 4.205 per mmBtu.

State-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) can, however, get the new rates this year itself for gas they produce from fields given to them on nomination basis by the government. Gas from nominated fields, called APM gas, was last revised in June 2010 to USD 4.2 from USD 1.79.

The Rangarajan panel suggested rates may also not apply to BG Group-operated Panna/Mukta and Tapti fields in the western offshore as the current rates of USD 5.57-5.73 per mmBtu for the fuel produced from these are derived from a pre-defined formula detailed in the PSC.

However, Cairn India's eastern offshore Ravva gas, which is currently priced at USD 3.5-4.3 per mmBtu, may be revised as per the committee recommendations.