Cost Of CNG, PNG To Increase As Prices Of Natural Gas Hiked By 40%

Natural Gas Price Hike: Natural Gas Price Increase: With a 40% increase, natural gas used to generate electricity and make fertiliser have reached all-time highs.

Natural gas prices were hiked by 40 per cent to record levels on Friday, in line with global firming up of energy rates. The steep increase in gas prices is likely to lead to higher rates for CNG and piped natural gas (PNG), which has in the last one year risen by over 70 per cent, PTI reported.

Natural gas is used to generate electricity, make fertiliser, converted into CNG to power automobiles and piped to household kitchens for cooking purposes.

According to an order from the Oil Ministry's Petroleum Planning and Analysis Cell (PPAC), the rate paid for gas produced from old fields, which account for roughly two-thirds of all gas produced in the country, has been raised to USD 8.57 per million British thermal units from the current USD 6.1. 

Simultaneously, the price of gas from difficult and newer fields, such as those operated by Reliance Industries Ltd and its partner bp plc in the KG basin, was raised to USD 12.6 per mmBtu from USD 9.92, according to the order.

These are the highest rates for managed/regulated fields (like ONGC's Bassein field off the coast of Mumbai) and free-market areas (like the KG basin). According to PTI, this will be the third rate increase since April 2019, and it comes as benchmark international prices have firmed.

The government sets the price of gas every six months, on April 1 and October 1 of each year, based on rates prevalent in gas surplus countries such as the United States, Canada, and Russia in one year with a one-quarter lag.

So, from October 1 to March 31, the price is based on the average price from July 2021 to June 2022. This is the time when global interest rates skyrocketed.

The government has established a committee to review the pricing formula since increasing gas prices could feed inflation, which has been stubbornly over the RBI's comfort level for the past eight months.

As higher gas prices can potentially further fuel inflation, which has been stubbornly above the RBI's comfort zone for the past eight months, the government has set up a committee to review the pricing formula.

The committee, under former planning commission member Kirit S Parikh, has been asked to suggest a "fair price to the end-consumer" by September-end but the report is delayed.

The government had in 2014 used prices in gas surplus countries to arrive at a formula for locally produced gas.

(With PTI Inputs)