Government Raises Natural Gas Price, But CNG Price Remains Capped

The government on Monday raised the price of natural gas produced from difficult areas like deep sea KG-D6 block of Reliance Industries, marginally to $10.16 per million British thermal unit in line with international trends, an official notification said. However, the price of gas that is used for making CNG for fuelling automobiles or piping to household kitchens for cooking purposes will remain unchanged due to a price cap that is set at 30% less than market rates such as that paid to Reliance.

For the six-month period starting Oct. 1, the price of gas from deep sea and high-pressure, high-temperature areas has been raised to $10.16 per mmBtu from $9.87 per mmBtu during April-September, oil ministry's Petroleum Planning and Analysis Cell said in a notification.

The increase follows three straight bi-annual reductions in rates for difficult fields. Price was for six months beginning Oct. 1, 2023, slashed 18 per cent to $ 9.96 per mmBtu from $12.12 for the April to September 2023 period. Prior to that, the rate was a record $12.46 from October 2022 to March 2023.

The government bi-annually fixes prices of the locally produced natural gas -- which is converted into CNG for use in automobiles, piped to household kitchens for cooking and used to generate electricity and make fertilisers.

Two different formulas govern rates paid for gas produced from legacy or old fields of national oil companies like Oil and Natural Gas Corporation and Oil India Ltd. and for newer fields lying in difficult-to-tap areas, such as deep sea.

The ceiling price of gas from difficult fields is fixed on April 1 and Oct. 1 each year.

In April last year, the formula governing legacy fields was changed and indexed to 10% of the prevailing Brent crude oil price. The rate was, however, capped at $6.5 per mmBtu.

Rates for legacy fields are now decided on a monthly basis. For October, the price came to $7.48 per mmBtu but because of the cap, the producers would get only $6.5 per mmBtu, the PPAC said.

The price for difficult area gas continues to be governed by the old formula that takes a one-year average of international LNG prices and rates at some global gas hubs with a lag of one-quarter.

International prices had remained range-bound in 2024 and so it will translate into marginally higher prices for difficult fields starting October.

India is aiming to become a gas-based economy with the share of natural gas in its primary energy mix targeted to rise to 15% by 2030 from the existing level of around 6.3%.