The price of domestically produced natural gas was set at $3.23 per mmbtu in the prior six months period ended 31 March 2019.
The price of natural gas produced from discoveries in deep water, ultra deep water and high-pressure/temperature areas was also reduced by 34 per cent to $5.61 per mmbtu from $8.43 per mmbtu in the earlier six-month period.
The downward revision for the price comes at a time when the global crude oil rates have crashed to $20 per barrel.
In India, natural gas is priced based on a formula that is revised bi-annually. As per the formula, the price is the weighted average of four global benchmarks — Henry Hub, Alberta gas, NBP and Russian gas. The formula considers the global benchmarks in the prior year and kicks in with a quarter’s lag, effective for six months.
The reduction in gas prices will impact the revenue for upstream players like state-owned Oil and Natural Gas Corporation (ONGC) and Oil India as well as private Exploration and Production (E&P) companies like Reliance, BP and Cairn Oil and Gas.
The low prices will benefit city gas distribution (CGD) companies like Indraprashta Gas (IGL), Mahanagar Gas (MGL), Gujarat Gas and fertilizer producing companies.
ONGC has in the past voiced concerns over low oil prices impacting profitability and viability of projects. The company’s chairman Shashi Shanker in a recent interview indicated that low gas prices have resulted in losses of over Rs 5,100 crore between 2017 and 2019 for the company.
RIL and its partner BP plan to start gas production from their ‘second-wave’ of discoveries in eastern offshore KG-D6 block from mid-2020 while ONGC has already commenced natural gas production from its mega offshore deep-water -KG-98/2- project.
Both domestic and foreign companies like BP and Total have voiced concerns over the country’s low natural gas prices and the formula