Thursday, May 20, 2010

Natural Gas Price Increase in India as Incentive to Produce

NEW DELHI: The government has doubled the price of natural gas produced by ONGC and Oil India from nomination blocks that will make the fuel used in automobiles and households in Mumbai and National Capital Region of Delhi costlier by 20-35%. 

The government raised administered price mechanism (APM) gas price to $4.20 per unit at par with Reliance Industries’ KG-D6 gas price, discovered on the basis of market principles. The $4.2 per unit price is already approved by an empowered group of ministers. APM gas is a term used for gas blocks awarded to state-run energy firms on nomination basis. 

“The price of compressed natural gas (CNG) may increase by 20%, but will depend from city to city,” said joint secretary in the ministry of petroleum & natural gas Apurva Chandra. 

The impact on piped natural gas (PNG) will be difficult to ascertain as it is linked to LPG prices, he said. CNG is used in gas-run automobiles while PNG is used in households for cooking purpose. 

A senior executive of a gas utility firm said “the consumer will have bear the impact of this price increase. It will be in the range of 20-35% depending on cities.” 

“The fuel will, however, be cheaper for consumers compared to diesel,” he said requesting anonymity as the company could not calculate exact quantum of price hikes. 

“Companies like IGL (Indraprastha Gas Ltd) and MGL (Mahanagar Gas Ltd) will certainly pass on the impact to consumers for their survival but the quantum will not be the 100% jump as in case of APM gas price,” Scope director general and former Gail chairman & managing director UD Choubey said. 

The government has decided to protect customers in the North East by providing a 40% subsidy, information and broadcasting minister Ambika Soni said announcing the Cabinet decision to raise fuel prices. 

The move will certainly help companies like OIL and ONGC and incentivise them to produce more natural gas, Dr Choubey said. As per an initial calculation, ONGC may be able to save a revenue loss of Rs 5,000 crore in this current year that will boost its bottom line proportionately. The company is schedule to announce its annual result for 2009-10 on next Friday. 

“It will wipe out our under-recoveries (revenue loss) on account of gas production,” ONGC chairman & managing director RS Sharma told ET. The company lost a revenue of Rs 4,700 crore in 2008-09 for selling APM gas below cost. As per experts, a hike in the fuel price may have marginal impact on power and fertiliser companies. “The gas price will be largely pass through,” a fertiliser ministry official said. 

But NTPC CMD RS Sharma said the fuel price increase will have an impact of Re 1 per unit on discoms and will ultimately passed on to the consumer. 

The Cabinet raised APM price of natural gas from Rs 3,200 million standard cubic meters (mscm to Rs 6,818 mscm (or about $4.20/million standard British thermal unit). 

The government controls rates of gas, produced by ONGC and OIL from fields given to them on nomination basis. APM gas price were last revised in 2005 to 1.79 per mBtu.

No comments: