The government on Friday announced a 10 percent hike in price of domestic natural gas, a move that will translate into higher CNG price and increased cost of electricity and urea production.
Price paid to most of the domestic producers of natural gas has been hiked to $3.36 per million British thermal unit (mmBtu) from October 1, from the current $3.06, according to oil ministry's petroleum planning and analysis cell.
Natural gas prices are set every six months based on average rates in gas-surplus nations like the US, Russia and Canada.
India imports half of its gas which costs more than double the domestic rate.
The $3.36 per mmBtu rate would be for six months beginning October 1 and will be the highest since October 2015 to March 2016 when $3.82 per mmBtu price was paid to domestic producers.
The increase in price will boost earnings of producers like Oil and Natural Gas Corp (ONGC) and Reliance Industries but will also lead to a rise in price of CNG, which uses natural gas as input. It would also lead to higher cost of urea and power production.
Gas price was last hiked to $3.06 per mmBtu for April-September 2018 from $2.89 in the previous six months. This was just the second hike in nearly three years.
The government also hiked the cap price based on alternate fuels for undeveloped gas finds in difficult areas like deepsea, which are unviable to develop as per the existing pricing formula.
The price for such fields would now be $7.67 per mmBtu for six month beginning October 1 as compared to $6.78 currently, PPAC said.
As per the new gas pricing formula approved by the NDA government in October 2014, gas prices are to be revised every six months.
The increase in natural gas prices will mean higher raw material cost for compressed natural gas (CNG) and natural gas piped to households (PNG). It would also mean higher feedstock cost for power generation and manufacturing of fertilisers and petrochemicals.
The hike will boost producers like ONGC. Every dollar increase in gas price results in Rs 4,000 crore additional revenue for the PSU on an annual basis, sources said.
ONGC is the country's biggest gas producer, accounting for two-thirds of the over 70 million standard cubic meters per day current output.
All of its gas as well as that of Oil India and private sector RIL's KG-D6 block are sold at the formula approved in October 2014. This formula, however, does not cover gas from fields like Panna/Mukta and Tapti in western offshore and Ravva in Bay of Bengal.
Indian gas prices are calculated by taking weighted average price at Henry Hub of the US, National Balancing Point of the UK, rates in Alberta (Canada) and Russia with a lag of one quarter.
So, the rate for October 2018 to March 2019 is based on average price at the international hubs during April 2017 to March 2018.