Gas Prices May Dip Below $4.2/Unit From October 1: Report

New Delhi: Natural gas prices in India may, from October 1, fall below $4.2 per unit, a rate that was used last year to devise a new pricing formula to incentivise domestic exploration.

Using prevailing price in gas surplus nations like the US, Russia and Canada, the government had in October last year announced a new pricing formula that led to rates rising by about 33 per cent to $5.61 per million British thermal unit (mmBtu) for a period up to March 31, 2015 from the long-standing price of $4.2.

The rates, on net calorific value (NCV) basis, dropped to $5.05 per mmBtu for six month period beginning April 1, 2015.

"Preliminary calculations based on average price in the gas hubs stated in the formula indicate that the rate from October 1 is likely to be $4.16 or $4.17 per mmBtu on NCV basis," an Oil Ministry official said.

On gross calorific value (GCV) basis, the rate will be about $3.8 per mmBtu as compared to $4.66 currently.

"These are preliminary calculations and final numbers may vary by a few cents but the general trend is that prices will fall," he said.

The October 1 price cut will be the second reduction in rates ever - the first being on April 1.

While the cut will impact the revenue of producers like Oil and Natural Gas Corp (ONGC) and Reliance Industries, it will bring gains for users in the power and fertiliser sector in the form of lower feedstock cost.

As per the mechanism approved in October 2014, price of domestically produced natural gas is to be revised every six months using weighted average or rates prevalent in gas-surplus economies of US/Mexico, Canada and Russia to incentivise exploration in deep-sea that wasn't viable at $4.2 rate.

Indian gas price is calculated by taking weighted average price at Henry Hub of US, National Balancing Point of UK, rates in Alberta (Canada) and Russia with a lag of one quarter.

So, the rates for April 1 to September 30 period were based on average price at the international hubs during January to December 2014.

The October 1, 2015 to March 31, 2016 rate will be based on average of prices during July 1, 2014 to June 30, 2015.

The current price of $5.61 per mmBtu is already among the lowest in Asia Pacific. China pays explorers $11.9 per mmBtu rate for new projects while Indonesia and the Philippines price the fuel at $11 and $10.5, respectively.

Gas from offshore fields in Myanmar, where Indian firms ONGC and GAIL have stake, are sold to China for $7.72. Thailand prices gas from new projects at $8.2 per mmBtu.

The only nations with lower rates than prevailing price are Vietnam ($5.2) and Malaysia ($5).