India cuts Oct-Mar natural gas price by 25% to $1.79/MMBtu

New Delhi — India has cut its domestic natural gas price by 25.1% to $1.79/MMBtu for the six-month period with effect from Oct. 1, the oil ministry said Sept. 30, reflecting the third straight fall over a period of one year.

The gas price was $2.39/MMBtu for the April-September period of the current fiscal ending in March 31.

The new half-yearly price will be the lowest gas price ever recorded under the new domestic gas price since 2014.

India introduced the new gas pricing formula in 2014 based on prevailing rates in gas surplus nations such as the US, Canada, and Russia to fix domestic rates.

Analysts said the price cut would dent the revenues of upstream state-owned companies such as Oil and Natural Gas Corp. and Oil India Ltd.

Upstream companies were earlier able to absorb the loss from the natural gas segment via crude sales, but with the sharp fall in crude prices this year, that benefit is not available.

The price cut would help natural gas end-user industries to lower the cost of manufacturing of urea and petrochemicals where natural gas is used as the feedstock and ease subsidy the burden for the government.

The cut will lead to a fall in prices of CNG and PNG and benefit the consumers.

The fall in gas price will also raise margins of the power sector and sponge iron industry where it used for the generation of energy.

In India, around 48% of natural gas is used as feedstock and the rest 52% is used for fuel and power sectors.

The lower gas price will help gas-based power plants to a lesser extent as overall the coal-based power plants are still in majority.

The lower price will act as a disincentive for producers like ONGC to boost investment and production in the gas sector to fulfill the country's goal of more than doubling the share of gas to 15% from the current level of 6.2% in the energy mix.

ONGC, India's largest gas producer, produced 23.75 billion cu m/year in 2019-20, down 3.7% on the year.

ONGC accounted for 78% of the country's total gas production.

India also cut the gas price ceiling for difficult fields by 27.6% to $4.06/MMBtu for the October-March period in comparison to $5.61/MMBtu in the April-September period.

The new prices will be applicable on the gross heat value basis until March 31.