Govt Increases Gas Price By 62%: CNG, Cooking Gas Will Become Upto 11% Expensive

The government has increased the price of natural gas and turned into CNG for use as fuel by 62%.

This specifically refers to natural gas that is used to produce electricity, make fertilisers and turned into CNG to use as fuel in automobiles and cooking gas for household kitchens.

The Hike

It will now be priced at $2.90 per million British thermal unit for the six month period beginning 1 October.

This reflects a 62% increase from the April-September 2021 price of $1.79/mmBtu, which was the lowest since 2014.

This hike in domestic gas price is driven by the significant run up in the prices of gas at global gas hubs.

Effects

This hike will likely lead to a 10-11% increase in CNG and piped cooking gas rates in cities such as Delhi and Mumbai.

Another consequence could be a hike in the cost of power generation.

But in this case, consumers may be unaffected since the share of power produced from gas is very low.

The cost of producing fertiliser will also increase but an increase in rates is unlikely since the government subsidises the crop nutrient.

Pricing Procedure

This is the first price hike since April 2019 and comes after firming benchmark international prices.

But it does not reflect the spurt in spot or current price of liquefied natural gas (LNG) witnessed during the last couple of weeks.

Natural gas price is set every six months – on April 1 and October 1 – each year.

Revenues

It affects the earnings of state-run producers such as Oil and Natural Gas Corp Ltd and Oil India Ltd.

A $1 increase in gas price results in Rs 5,200 crore revenue for ONGC on an annualised basis. 

It is based on rates prevalent in surplus nations such as the US, Canada and Russia in one year with a lag of one quarter.

So, the price for October 1 to March 31 is based on the average price from July 2020 to June 2021.

Deep-Sea Gas Production

The price for gas produced from difficult fields such as deep sea was hiked to $6.13 per mmBtu.

The gas produced here is based on a different formula and the earlier rate was $3.62 per mmBtu.

This is the maximum price that Reliance Industries Ltd and its partner BP plc are entitled to for the gas they produce from deepsea blocks such as KG-D6.

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