Bills of natural gas consumers, be it residential or industrial, are set to get lighter with the benefit of lower gas prices expected to be passed on to consumers from April. Apart from individual consumers, reduced gas prices augur well for industries, gas-based power projects and city gas distribution (CGD) companies.
Globally, natural gas prices have already plummeted due to the slump in demand consequent to the spread of the COVID-19 pandemic. The price of natural gas in spot markets have halved to around $3-4 per mmBtu, which is almost near its decadal low. Following global cues, the natural gas prices in India are estimated to be cut by a steep 25% from the next month.
Based on the current formula for price determination, market estimates suggest that the domestic gas price is likely to be cut to US$ 2.5 per million metric British thermal units (mmBtu) for the six months beginning from April. The gas price was last reduced by 12.5% to US$ 3.23 per mmBtu effective from October 1, 2019.
The Centre revises the price of domestically produced gas every six months based on average benchmark natural gas prices in US, UK, Canada and Russia. India’s natural gas requirement is met with both import of liquefied natural gas (LNG) and locally produced gas, mainly by public sector majors, ONGC Ltd and Oil India Ltd.
Domestic gas is provided on priority basis for consumption by individual households, transportation (compressed natural gas), fertilizers and power generation among other selected sectors.
“After considering operation costs and taxes, one-third of the possible 25% reduction in domestic gas price will be passed on to the consumers. The retail prices of the piped natural gas (PNG) for residential consumers and compressed natural gas (CNG) are likely to reduce by 8-10%,” said people associated with the CGD business.
At present, the state-run Gujarat Gas Ltd charges Rs 712.10 (excluding tax) per mmBtu for domestic PNG and Rs 54.70 per kg for CNG in Gujarat. Adani Gas Ltd’s retail price for residential PNG and CNG in Ahmedabad is Rs 686.85 per mmBtu (excluding tax) and Rs 54.82 per kg, respectively.
Low natural gas price has brightened prospects for industrial production as well. Ceramics, chemicals and a host of other industries in the state use natural gas as fuel.
“We are expecting a reduction of Rs 3-4 per cubic metre in gas price supplied to ceramic tile makers in Morbi as the LNG prices have declined globally,” said K G Kundariya, chairman, Wintel Ceramics Pvt Ltd. Morbi is the largest gas-consuming industrial cluster in India with daily consumption of approximately 6 million cubic meters of gas.
“Reduction in natural gas prices will certainly bring down our production costs as natural gas accounts for 35% of the production expenses incurred,” said Mukesh Ughreja, president, Morbi Ceramic Association. Low production cost is expected to help local players become more competitive in the international market and increase exports.
“Those who already enjoy a strong position in the market will benefit in terms of better margins and profitability. Those who are trying to gain ground in the market, can do so by lowering their prices,” he added.
The ceramic industry faced tough times over the last two years. The low gas prices in the international market and strong possibility of price reduction in the domestic market have provided a much-needed cushion to the industry.
“We are expecting a reduction of Rs 5 per cubic meter in prices of natural gas supplied to Morbi ceramic industry. If that happens, Morbi will be able to save Rs 30 million in fuel cost per day,” said Ughreja.
The industries in Vapi and Ankleshwar are looking at the rate revision in gas prices after the LNG prices have reduced in the international market. Vapi and Ankleshwar are the hubs of chemicals, dyes and intermediates apart from other industries including glass, paper mills, bulk drugs, pharmaceuticals, etc.
“Majority of the gas users in Ankleshwar are small-scale units. There are over 600 small scale units running on natural gas. The fall in LNG prices will benefit small industries including dyes and intermediates, agro chemicals, glass etc. in the region and increase their competitiveness in the international market,” said Mahesh Patel, president of Ankleshwar Industrial Association (AIA).
“Reduced natural gas price will bring down the generation cost of gas-based power projects. It will also be beneficial to stranded gas-based power projects as electricity generation from gas-based power plant becomes viable with lower gas prices,” said K K Bajaj, an Ahmedabad-based energy and regulatory expert.
Currently, gas-fired power projects with cumulative installed capacity of 3,898MW are stranded in Gujarat for want of gas.
According to CRISIL, the viability of Rs 500 billion capital expenditure planned in the CGD space over the next four years across India has improved with the price of liquefied natural gas (LNG) expected to be subdued during the period.Share This