From October 1, domestically produced natural gas price will be at $4.24 a unit on net value for the next six months. This is slightly lower than what it was during the government controlled (administered price mechanism) regime at $4.66 a unit.
There was speculation if the government would reduce the price for domestically produced gas in sync with the global trend as the worst hit will be its own exploration major — ONGC. The government on Wednesday announced a price reduction of almost 16 per cent on net.
A government notification said the revised price will be $3.82 per million British thermal unit (mBtu) on a gross calorific value basis (or $4.24 a unit on net) for October to March 2016 (value of the gas is measured based on its heat). This is the third revision since the gas price was deregulated in November 2014.
If the benefit is passed onto consumers, it would result in cheaper electricity bills as well as lower rates for piped cooking gas and compressed natural gas (used for transportation). Every dollar change in gas price impacts the CNG price by about ₹3 a kg, piped natural gas rates by around ₹2 per standard cubic metre and the electricity tariff by 45-50 paise a unit.
ONGC Chairman and Managing Director Dinesh K Sarraf told BusinessLine that “as an E&P company, we had already appealed to the government to revise the natural gas price upwards or to put a floor price...”
He said the company believes that the phase of low oil and gas prices (since both are co-related) is temporary and therefore it is an opportune time to work on exploration assets as the cost of services is low. Sarraf said the company believes that these assets would start producing in a few years and give results when the market is good.
For the government, on the one side it means lower subsidy payout for power and fertiliser sectors and, on the other, reduced earnings from royalty and cess given by hydrocarbon exploration and production companies.
With ONGC and OIL’s revenues taking a hit, the government’s royalty and cess collections will also dip. In the first quarter of fiscal 2015-16, ONGC paid ₹5,662 crore as statutory levies, which included royalty payout.