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India raises prices of domestically produced gas amid tough markets

Highlights

Increase in prices of gas produced from both old, challenging fields

Hike period runs from October-March

Inflationary fears, recession risks loom: sources

  • Author
  • Michelle Kim    Surabhi Sahu
  • Editor
  • Ribhu Ranjan
  • Commodity
  • Coal Electric Power LNG Natural Gas Oil Petrochemicals

India has increased the price of domestically produced gas from old fields from Oct. 1, 2022 to March 31, 2023 to a record $8.57/MMBtu on a gross calorific basis, a statement by the Petroleum Planning and Analysis said Sept. 30.

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This price was set at $6.1/MMBtu for April-September and has shot up by over 40% now.

In a separate statement on Sept. 30, the PPAC also said the new domestic gas price ceiling for the difficult gas fields had been set at $12.46/MMBtu for the October to March period, which was around $9.92/MMBtu from April to September.

This new price is also applicable on a gross heat value basis.

The increase in prices reflects the need to pass over part of the costs to end-users amid high gas prices adding to fears of further inflation amid tough international markets and persistent geopolitical risks, market sources said.

"With [the] high [LNG] prices, demand is getting impacted. Moreover, in India, [the] domestic gas prices are also moving North, so [some] downstream sectors might feel the heat," an Indian market source said.

The refinery and petrochemicals sectors accounted for around 9.84% and 5.79% of India's total gas demand in the first half of 2022, respectively, followed by fertilizer (46.94%), city gas (20.33%), other industries (11.50%) and power generation (5.60%), according to the data from Indian Ministry of Petroleum and Natural Gas.

Bracing for impact

"With crude oil price falling and recession [fears] are growing," the source added.

Meanwhile, another source noted that prices had been increased because there was more pressure on infrastructure amid firm demand.

This move was likely to result in a rise in CNG and piped cooking gas rates in some cities, exacerbating inflation, which is already quite high, the source said.

Last week, India's Monetary Policy Committee (MPC) increased the repo rate, or the key rate at which the Reserve Bank of India lends short-term funds to commercial banks, to 5.9% from 5.4%, in an attempt to curtail inflation.

After the gas price hike, the gap between CNG and downstream gasoline prices will decrease significantly, Ayush Agarwal, an LNG analyst at S&P Global Commodity Insights said.

"This will impede the growth of CNG demand in the Indian market. Furthermore, the rise in domestic gas prices will also increase the subsidy burden on the government for the fertilizer sector, which has already inflated due to high LNG prices," Agarwal added.

A third market source echoed a similar sentiment. He said that domestic gas demand in unregulated sectors such as refineries/petrochemicals might be cut down, prompting a fuel switch.

At the same time, the price hike was not likely to fuel increased output or significantly raise the profitability of local gas producers as their production situation and quantity have been largely monitored by government, he added.