Home > Natural Gas, Power > Natural gas prices under APM rise

Natural gas prices under APM rise

I had written about the natural gas pricing issue between RIL and RNRL (Is the RIL-RNRL saga over), post the judgement by the Supreme Court, natural gas prices in India have seen upward movement.

In order to bring pricing parity between gas under administered pricing mechanism (APM) and that from the Krishna-Godavari basin, the government of India has approved a hike in the APM gas price. APM gas, sold by Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) from nomination blocks (gas blocks leased out to these companies by the government), is raised from Rs 3.20 per standard cubic meters (scm) to Rs 6.82 per scm.

Prices are now at $4.2 per million British thermal unit (mmBtu) (pre-royalty adjusted) from $1.9 per mmBtu earlier. The prices will be effective until March 2014.

An empowered group of ministers (EGoM) had determined the prices for the Krishna-Godavari (KG) D6 gas at $4.2 per mmBtu. There was also a row between the Mukesh Ambani-led Reliance Industries and Anil Ambani’s Reliance Natural Resources over the pricing of gas, which was directed by Supreme Court to be negotiated as per the EGoM’s recommendation.

The government had, prior to the judgment, also set offtake quotas and priorities for the fertiliser industry (where natural gas is feedstock), the power sector (around 18,000mw of Indian power capacity is gas-based) and the city gas distribution (CGD) network that is just getting off the ground.

ONGC and OIL have been making substantial under-recoveries and losses on sale of natural gas at administered prices that were last revised in 2005. The current move is expected to boost the bottomline of these oil PSUs.

However, it will push up fuel costs for the power and fertiliser sectors. Power minister Sushilkumar Shinde said tariffs could go up by up to Re 1 per unit (kwh) for projects following the government’s decision to hike gas prices under the APM. Currently, about 11% of overall electricity is generated by using gas. Of this, less than half of the fuel requirement is met by the APM gas.

This move is also likely to result in a 20% increase in prices of compressed natural gas (CNG), used by some vehicles in New Delhi and Mumbai.

Categories: Natural Gas, Power
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