Govt approves near doubling of natural gas price from April 2014

New Delhi: The Cabinet Committee on Economic Affairs (CCEA) on Thursday approved gas price hike from April 2014, a move which will result in rise in power tariff, urea cost and CNG prices.

The CCEA which approved Rangarajan formula for gas pricing will be valid for five years. Gas prices will be increased to $ 8.4 per million British thermal unit from April 1, 2014. According to sources the prices will be revised in every three months.

This will be the first revision in gas prices in 3 years. The Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Manmohan Singh approved Oil Ministry's proposal to price all domestically produced natural gas as per a complex formula suggested by a panel headed by Prime Minister's economic advisor C Rangarajan, a top source said.

The new price will apply uniformly to all producers, be it state-owned firms like Oil and Natural Gas Corp (ONGC) or private sector Reliance Industries. While it was previously said the new rates would apply to regulated or APM gas produced by firms like ONGC immediately, the pricing as per Rangarajan formula will come into effect from April 1, 2014, just when RIL's KGD6 formula of $ 4.2/mmBtu runs out.

The Rangarajan formula uses long-term and spot liquid gas (LNG) import contracts as well as international trading benchmarks to arrive at a competitive price for India. While the Rangarajan panel had recommended revising domestic gas prices every month based, the Oil Ministry changed it to a quarterly revision.

Though the average of of the two currently comes to $ 6.775, the price of gas in April next year when these guidelines will come into effect would be around $ 8.42 and over $ 10 in the following year. This is because Petronet s deal with Qatar's RasGas (India's only functional long-term LNG contract) has a price-cap which lifts in January 2014, linking gas prices fully with crude.

While RIL's KG-D6 gas price was fixed in 2007 at $ 4.205 per mmBtu for first five years of production, APM gas rates were last revised in June 2010 when prices were raised to $ 4.2 from $ 1.79. RIL began production from its eastern offshore KG-D6 field in April 2009.

With Additional Inputs From PTI