Govt cuts natural gas price for CNG, cooking use for first time in 2 yrs

Key Takeaways:

• First reduction of natural gas prices in two years, from USD 6.75 to USD 6.41 per mmBtu.
• The price cut reflects a decline in benchmark rates in the energy market.
• City gas retailers like Indraprastha Gas Ltd, Mahanagar Gas Ltd, and Adani-Total Gas Ltd will benefit.
• New pricing formula implemented in April 2023 led to this reduction.
• The reduced prices apply to gas from legacy fields allocated to state-owned ONGC without auction.

Government Reduces Natural Gas Prices

For the first time in two years, the Indian government has reduced the price of natural gas used for producing CNG for vehicles and cooking gas. This decision reflects a decline in benchmark rates and marks a significant development in the country’s energy sector.

Price Dropped from USD 6.75 to USD 6.41 per mmBtu

According to a notification from the Oil Ministry’s Petroleum Planning and Analysis Cell (PPAC), the price of natural gas from legacy fields allocated to state-owned Oil and Natural Gas Corporation (ONGC) without auction has been reduced from USD 6.75 to USD 6.41 per million British thermal units (mmBtu).

Impact on City Gas Retailers

The reduction is expected to aid city gas retailers like Indraprastha Gas Ltd, Mahanagar Gas Ltd, and Adani-Total Gas Ltd. These companies have been reeling under cost pressures resulting from rising input costs. The lower gas prices may provide much-needed relief and could potentially lead to reduced prices for end consumers.

New Pricing Formula Implemented

In April 2023, the Union Cabinet accepted an expert committee report to price, on a monthly basis, gas from legacy fields—known as APM (Administered Pricing Mechanism) gas. The pricing was set at 10 percent of the monthly average import price of crude oil, with a floor of USD 4 and a cap of USD 6.5 per mmBtu. This reduction is the first since the new formula’s implementation.

Reflection of Declining Benchmark Rates

The decision to lower gas prices is a response to the decline in global benchmark rates. By adjusting prices accordingly, the government aims to align domestic natural gas prices with international trends, ensuring competitiveness and stability in the energy market.

Significance for the Energy Sector

This price cut is a notable development for India’s energy industry. It not only provides immediate financial relief to gas retailers but may also have downstream effects on the economy, influencing everything from transportation costs to the price of cooking gas for households.