Government may cut gas price for producers by 20 percent in October, when it is scheduled for its next review. This will be the fourth consecutive reduction since the implementation of the domestic gas pricing formula approved by the NDA- government in October 2014 that calculates the rate on a volume weighted average of rates in gas surplus nations of the US, Canada and Russia, based on the 12-month trailing average price with a lag of three months.
Price of natural gas paid to producers like state-owned ONGC and RIL will likely fall to $ 2.45 per million British thermal unit (mmbtu) with effect from October 1 as opposed to $ 3.06 presently on gross calorific value (GCV) basis. On a net-calorific value (NCV) basis, the new gas price is likely to be $ 2.7 from October 1. The reduction in natural gas prices would mean lower raw material cost for compressed natural gas (CNG) and natural gas piped to households (PNG) and would translate into reduction in retail prices.
On October 1, 2015 price of natural gas was lowered to $3.82 per mmBtu from $4.66. The cap for April 1 to September 30 was $ 6.61 per mmBtu on GCV basis and $ 7.3 on NCV basis. The price cut on 1 October, 2016 will put further pressure on finances of upstream producers who do not find the current rate incentivising enough to invest more in oil and gas hunt. The cap price based on alternative fuels for undeveloped gas finds in difficult areas like deep sea will also fall to around $5.2-5.3 per mmBtu from $6.61 currently.
The price of gas has declined by around 39 per cent since the implementation of the gas pricing formula in October 2014. The government had earlier this year approved marketing and pricing freedom for all undeveloped discoveries lying in difficult areas subject to a cap.