On Thursday, the cost of domestically manufactured natural gas was increased to $2.9 per million British thermal units (mBtu) for the months of October 2021 to March 2022. Additionally raised to $6.13 per mBtu is the ceiling price for natural gas produced from deepwater, ultra-deepwater, and high pressure/high temperature (together referred to as challenging) discoveries.
From the price the government set for the period of April to September 2021, these prices have nearly doubled. During this time, domestic gas was priced at $1.79 per mBtu, while the maximum price for challenging gas was $3.62. This will result in more expensive transportation using higher-compressed natural gas and more expensive cooking using piped natural gas .
The price increases come as gas prices firmed up on the international benchmarks that determine domestic rates.
Since 2014, the weighted average of natural gas prices at international gas hubs has been factored into a system that determines domestic gas prices. The landed price of alternative fuels is correlated with the ceiling price of gas from challenging discoveries.
These two prices essentially move in the same direction.
The weighted average price of natural gas that is prevalent in benchmark markets over a three-month period is used to determine domestic gas pricing. After a delay of three more months, the Indian government adopts this price for the domestic market.
In other words, the global prices from April to June 2021 are used to establish the gas price for the six-month period from October 2021 to March 2022.
The current prices are putting a lot of pressure on upstream firms that are engaged in the exploration and production of natural gas. Some of the well-known players who stand to gain from an increase in gas prices are Oil and Natural Gas Corporation (ONGC), Oil India, Reliance Industries (RIL), BP (previously The British Petroleum Company), and Cairn Oil and Gas (a unit of Vedanta).
RIL and BP’s R-Cluster, an ultra-deepwater gas field in block KG-D6 off the east coast of India, would be one of the projects to profit from the price increase.
These stabilized gas prices will also have a significant positive impact on ONGC’s KG-DWN-98/2 project.
Vedanta’s oil and gas subsidiary Cairn Oil and Gas, which also produces natural gas from its mostly oil-bearing Rajasthani block, stands to benefit.
Companies in the United States are happy with natural gas prices of $3.5 or more per mBtu. According to Sabri Hazarika, senior research analyst at Emkay Global Financial Services, this might occur in the price revision that takes place between April 1 and September 30, 2022.
Gas produced from challenging discoveries is profitable at a price of $7-8 per mBtu. The April 1-September 30, 2022, price revision is likewise anticipated to bring prices to these levels, he continued.