Natural gas prices may reach record high this week

26 Sept 2022 , 08:13 AM

Natural gas prices are expected to reach record highs at the rate review set for this week, according to sources. Natural gas is used to produce electricity, fertilizer, and CNG, which is used to power automobiles.

On October 1, the government-imposed price for domestically produced natural gas is expected to change.

The price paid for gas generated from ancient fields, such as those of the state-owned Oil and Natural Gas Corporation (ONGC), is projected to increase to USD 9 per million British thermal units from USD 6.1 at present after accounting for the recent spike in energy costs.

In contrast to the present rate of USD 9.92, problematic fields like those in the D6 block in the KG basin, controlled by Reliance Industries Ltd. and its partner bp plc, are projected to receive approximately USD 12 mmBtu.

These are the highest pricing for managed/regulated fields and free-market areas, such as ONGC's Bassein field off the coast of Mumbai (such as the KG basin).

Additionally, since April 2019, there have been three rate increases, and this one follows a trend of stabilizing benchmark worldwide pricing.

Every six months, on April 1 and October 1, the government sets the price of gasoline based on rates common in countries with gas surpluses like the US, Canada, and Russia in a year with a lag of one quarter.

Therefore, the price for the period of October 1 to March 31 is based on the average price between July 2021 and June 2022. During this time, international interest rates skyrocketed.

According to a directive from the oil ministry, the group, led by former planning commission member Kirit S. Parikh, has been ordered to recommend a "fair price to the end-consumer."

The group, which includes members of the gas producers’ association as well as ONGC and OIL producers, was asked to deliver its findings by the end of the month, but sources say that it is likely to be postponed.

Up until March 2022, the rates predicted by this method were moderate and occasionally less than the cost of production, but beyond that point, they spiked rapidly, reflecting the increase in worldwide rates following Russia's invasion of Ukraine.

The price has more than doubled to USD 6.1 per mmBtu on April 1 and is now anticipated to cross USD 9 per mmBtu next month for gas from old fields, which are primarily produced by state-owned companies like ONGC and Oil India Ltd.

According to the sources, cities like Delhi and Mumbai would likely see an increase in the cost of CNG and piped cooking gas as a result of the rising gas prices.

Additionally, it will increase the cost of producing electricity, however, customers might not notice a significant increase in costs given how little power is produced using gas currently.

Similar to how the cost of making fertilizer will climb, an increase in rates is unlikely because the government subsidizes the crop nutrient.

For feedback and suggestions, write to us at [e-mail]