Friday , December 9 2022

CNG, PNG rates to jump as gas prices raised 40% to $8.5 per unit

NEW DELHI: CNG and PNG will become costlier and input cost for fertiliser manufacturers will rise sharply as the government on Friday raised the prices of natural gas produced from domestic fields over 40% to record levels, even as a panel of experts is reviewing the pricing formula with a view to moderating consumer rates.
Gas produced from legacy fields given to state-run ONGC and Oil India will cost $8.57 per unit (million British thermal unit) from Saturday, up from $6.1 till the next six-monthly revision till April 2023. Similarly, the price ceiling for gas produced from geographically and technologically challenging fields such as the Andhra offshore fields of Reliance-BP was raised to $12.46 per unit, a jump of over 25% from $9.92.
The sharp increase in the price of domestic gas, the main input for city gas services, will have an impact of about Rs 9.50 to Rs 10 per kg of CNG (compressed natural gas), roughly 13% of the current price of Rs 75.61 per kg in Delhi, industry executives said. The impact on PNG (piped natural gas) will be to the tune of Rs 6.50-7 per unit (SCM), or 13.8% of the current price of Rs 50.59 per SCM (standard cubic meter).
It is, however, unlikely that CNG and PNG operators will pass on the entire burden without driving consumers away as natural gas becomes expensive in terms of per-kilometre running cost compared to petrol and diesel. Falling demand has forced auto manufacturers to prune production of CNG vehicles.
Failure to pass on the entire impact will squeeze the margins of city gas operators, which has already been under pressure due to the rupee’s fall. This will impact the economics of an estimated Rs 80,000 crore investment being made to roll out city gas projects in 400 districts in the country.
What looks more plausible is that the city gas operators may choose to pass on the impact partially to avoid causing market shock.
The prices have jumped largely due to the impact of surge in international rates following the Russia-Ukraine conflict. Global spot market rates had shot up to $65 per unit, 4-5 times the normal, soon after the conflict began, which coincides with the period that is considered under the pricing formula. Global spot prices have to about $40 per unit as a result of the recent drop in oil prices, which will reflect only after six months if the formula remains unchanged.
India depends on imported gas to meet about 50% of its demand. Hence the 2014 formula was benchmarked to a six monthly rolling average of rates in major markets such as the US, Canada and the FSU (former Soviet Union) countries. All of them are gas surplus markets.
Domestic gas is mostly used for CNG and PNG services as well as fertiliser units. A minuscule quantity is used for power generation. So these are the users that will be hit the hardest.




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