Business

Gas Prices Set to Double This Week


The government sets gas prices every six months.

New Delhi:

In a bonanza for gas producers, Reliance Industries is poised to get a record price of around $ 10 per MMBtu for KG gas, while state -owned ONGCs are likely to earn more than double the rates for Mumbai High and other areas, sources said. .

The government -set price for natural gas produced in the country will be reviewed on April 1 and take into account the increase in energy prices witnessed last year, the rate paid for gas produced from farms given to the state -owned Oil and Natural Gas Corporation (ONGC) on a nomination basis is likely to increase to $ 5.93 per million British thermal units from the current $ 2.9.

At the same time, tough terrain such as that found in Reliance and its partner bp plc operating the D6 block in the KG basin, is likely to get a price of $ 9.9-10.1 compared to the current rate of $ 6.13, said two sources familiar with the matter.

This is the highest rate for administered/controlled fields (such as the ONGC Bassein field off the coast of Mumbai) and free market areas (such as the KG basin).

Moreover, this will be the second increase in rates since April 2019 and driven by the strengthening of international benchmark prices.

The government sets gas prices every six months – on April 1 and October 1 – each year based on rates prevalent in gas surplus countries such as the U.S., Canada and Russia in a year with a quarter to one.

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 soar.

The volume weighted averages of prevailing prices over a 12 -month period at US -based Henry Hub, Canada -based Alberta gas, NBP and UK -based Russian gas are used to set prices for ONGC and Oil India Ltd -administered fields.

For difficult areas such as discoveries in deep water, ultra deep water and high -pressure high temperatures, a slightly modified formula is used by incorporating LNG prices, which have also penetrated the roof by 2021.

Reliance-bp-operated KG fields are classified as difficult fields.

The source said the rise in gas prices is likely to lead to an increase in CNG and pipe cooking gas rates in cities, such as Delhi and Mumbai.

It will also lead to an increase in the cost of electricity generation but consumers may not feel any major pressure as the share of power generated from gas is very low.

Similarly, the cost of fertilizer production will also increase but since the government subsidizes crop nutrients, an increase in the rate is unlikely to happen.

For producers, this is the first time in six years they will get a compensation price.

ONGC has suffered losses on 65 million standard cubic meters per day of gas it produces from domestic farms shortly after the government in November 2014 introduced a new gas pricing formula that has “inherent limits” as it is based on national gas surplus pricing hubs such as the US, Canada, and Russia.

The source said the ONGC in several communications to the government had stated that the break-even price to produce gas from new discoveries was in the range of $ 5-9 per MMBtu and for old fields like Mumbai High and Bassein was about $ 3.6- 3.7.

The Congress -led UPA had approved a new pricing formula for implementation in 2014 that would raise rates, but the BJP -led government rescinded it and brought in a new formula.

The new formula takes into account the volume -weighted annual average of prices prevalent at Henry Hub (US), National Balancing Point (UK), Alberta (Canada) and Russia with a quarter down.

The rate on the first revision, using the new formula, hit $ 5.05 but in the next six months revision continued to fall to reach $ 2.48 for the period April 2017 to September 2017.

After that, it increased to $ 3.69 in April 2019-September 2019 before being cut in the next round to $ 1.79.

Agrasmartcity

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