NEW DELHI: The price of natural gas produced from domestic fields crashed to their lowest at $1.79 per unit (million British thermal unit or mBtu) from $2.39 on Wednesday, clouding future ability of domestic producers such as ONGC and OIL to continue supplies but setting the stage for cheaper CNG and PNG for consumers.
The six-monthly revision of prices in accordance with the government formula also lowered the price from gas from new discoveries in deep-sea and high-pressure high-temperature blocks to $4.06 per unit from $5.6, which will adversely impact the viability of east coast projects of ONGC and RIL-BP altogether worth %10 billion.
This is the third straight reduction in gas prices. The price was last reduced by 26% to $2.39 in April. In contrast, LNG (liquefied natural gas) prices for October are pegged at $4-$4.5 per unit in international markets.
Natural gas prices are reset on April 1 and October 1 every year according to a formula benchmarked against rates in surplus markets such as the US, Canada, UK and FSU (former Soviet Union) countries with a lag of three months. The formula was introduced in 2014.
ONGC is estimated to take a hit of Rs 6,000 crore on the 65 million cubic meters of gas it produces due to the latest cut in price. It had previously suffered a loss of Rs 4,272 crore in 2017-18. But while high oil prices offset the impact in the past, the company does not have a similar cushion due to low oil prices.
Company executives reckon it costs $3.7 per unit to produce gas from fields awarded to it before the bidding regime was introduced. The break-even for gas from new discoveries is between $5 and $9 per unit.
The price at the time of the first revision under the new formula was $5.05 and then went on declining in the subsequent revisions to reach $2.48 for the April- September period of 2017. The price rose again to $3.69 in April 2019 before coming down in October 2019 to $3.23.
