Amid rising fears over the increase in natural gas prices to $8.4 per mbtu from April 1, 2014 which is twice the current rate, the cabinet will soon decide putting a cap to limit hike in gas rates. Earlier in June, the government had approved the formula under which all domestically produced gas will be priced at an average of the price prevailing at international gas trading hubs and the actual cost of importing liquid gas (LNG). The natural gas pricing formula will be effective from April 1, 2014 for a period of five years and the prices will be revised on the quarterly basis. Moreover, the price for each quarter will be calculated based on the 12-month trailing average price with a lag of one quarter.
Under the new approved pricing formula, the gas prices will get doubled at $8.40 per million British thermal unit from the current price at $ 4.20 per mbtu and put excessive burden on consumers. Finance Ministry and Power Ministry both asked the cabinet to put cap on gas price hike. The finance ministry is of the view that under this formula the gas producers will reap unlimited gains in case of an upswing in global prices, while on the other hand, Power Ministry feels any price of more than $5 per mbtu will lead to rise in electricity generation costs that would be hard for the consumers to absorb. Further, both the ministries also sought for excluding spot LNG deals from the formula because they are very volatile.
The new price will be uniformly applicable to all public and private sector producers alike. The increase in gas prices will directly benefit these local producers. Further, the move to raise gas prices is expected to benefit the government by around $2.2 billion incremental revenue by way of higher taxes. The government can use high profit share to subsidize gas supply to the core sector. So far, the new gas price formula has not been notified amid disputes over whether Reliance Industries should get the new rates, as it has not been producing as per pre-stated targets from eastern offshore KG-D6 block.
Under the new approved pricing formula, the gas prices will get doubled at $8.40 per million British thermal unit from the current price at $ 4.20 per mbtu and put excessive burden on consumers. Finance Ministry and Power Ministry both asked the cabinet to put cap on gas price hike. The finance ministry is of the view that under this formula the gas producers will reap unlimited gains in case of an upswing in global prices, while on the other hand, Power Ministry feels any price of more than $5 per mbtu will lead to rise in electricity generation costs that would be hard for the consumers to absorb. Further, both the ministries also sought for excluding spot LNG deals from the formula because they are very volatile.
The new price will be uniformly applicable to all public and private sector producers alike. The increase in gas prices will directly benefit these local producers. Further, the move to raise gas prices is expected to benefit the government by around $2.2 billion incremental revenue by way of higher taxes. The government can use high profit share to subsidize gas supply to the core sector. So far, the new gas price formula has not been notified amid disputes over whether Reliance Industries should get the new rates, as it has not been producing as per pre-stated targets from eastern offshore KG-D6 block.
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