The government on Thursday announced a 62 percent hike in the price of natural gas, which is used to produce electricity and is turned into CNG to use as fuel in automobiles and cooking gas for household kitchens.
This is the first hike since April 2019 when the price was at $1.79 per Metric Million British Thermal Unit (mmBtu). The revision, which is in line with the expectation of a 60 to 70 percent hike, comes on the back of the surge in global gas prices.
The hike comes as a positive for gas producers like Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL), however, it may prove to be negative for gas distribution companies like IGL and MGL and also power companies that use gas as an input as the revision could mean higher input costs.
Edelweiss had earlier said the move would be positive for ONGC. A hike of $1 per mmbtu will boost the profit before tax (PBT) by 14.50 percent on an annualised basis, it said, adding that it also means IGL and MGL will need to take 10 to 11 percent of price hikes, a lot of which they have already taken.
The oil ministry's Petroleum Planning and Analysis Cell (PPAC) said the rates paid for gas produced from fields given to state-owned ONGC and OIL will be $2.90 per million British thermal unit for the six-month period beginning April 1. Simultaneously, the price for gas produced from difficult fields such as deepsea, which is based on a different formula, was hiked to $6.13 per mmBtu from the current USD 3.62 per mmBtu.
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According to industry sources cited by news agency PTI, the increase in gas price is likely to result in a 10-11 percent rise in CNG and piped cooking gas rates in cities such as Delhi and Mumbai.
It will also lead to a rise in the cost of generating electricity but consumers may not feel any major pinch as the share of power produced from gas is very low. Similarly, the cost of producing fertiliser will also go up but as the government subsidises the crop nutrient, an increase in rates is unlikely.
While the government sets the price of gas produced by ONGC from fields given to it on a nomination basis, it bi-annually announces a cap or maximum price that operators who won exploration acreage under licensing rounds can get. The operators are supposed to do a market price discovery by seeking bids from users but that rate is subject to the price ceiling announced by the government, sources told PTI.
--With agency inputs