Domestic prices of natural gas may fall below $4.2 per unit from October 1 as international prices to which they are benchmarked have come down. This move could lead to lower piped cooking gas and CNG prices. Power plants which use gas a fuel and fertilizer units, which use it as an input would also benefit. Further, the cut will impact the revenue of producers like ONGC and Reliance Industries. This price cut will be the second reduction in rates since April 1.
Last year in October, government announced a new pricing formula which led to rates rising by about 33% to $5.61 per million British thermal unit (mmBtu) for a period up to March 31, 2015 from the long-standing price of $4.2, by using prevailing price in gas surplus nations like the US, Russia and Canada. As per the system the domestic natural gas price is to be revised every six months by using weighted average or rates prevalent in gas-surplus economies of US/Mexico, Canada and Russia.
From April 2015, the rates, on net calorific value (NCV) basis, dropped to $5.05 per mmBtu for six month period. According to the average price at the international hubs the rate is likely to be $4.16 or $4.17 per mmBtu on NCV basis from October 1. On gross calorific value (GCV) basis, the rate will be about $ 3.8 per mmBtu as compared to $4.66 currently.
Domestic gas price is calculated by using weighted average price at Henry Hub of US, National Balancing Point of UK, rates in Alberta (Canada) and Russia with a lag of one quarter. Earlier the rates for April 1 to September 30 period were based on average price at the international hubs during January to December 2014. Further, October 1, 2015 to March 31, 2016 rate will be based on average of prices during July 1, 2014 to June 30, 2015.