Oil Min proposes 44% hike in natural gas prices

The Union petroleum ministry has proposed a 44 per cent increase in prices of natural gas sold under the administered price mechanism by state-owned Oil & Natural Gas Corporation and Oil India Ltd.

This would take the price to $2.6 per million British thermal unit. The ministry has also proposed to link further changes in the price of regulated gas to the Wholesale Price Index. "The draft cabinet note on increasing price of natural gas under APM has already been prepared, and we have already taken inputs from fertiliser and power ministries," VLVSS Subba Rao, joint adviser (finance) in the ministry, said.

The price of APM gas, which is produced from the nominated fields, was last revised in 2006 by about 20 per cent with the fertiliser sector getting a chunk of the gas and certain previously earmarked small scale industrial units in Agra and Ferozabad. ONGC's shares gained on news that the government may hike regulated gas prices. At the Bombay Stock Exchange, ONGC's share price ended at Rs 1,177.75 at close of Friday's trade -- up 3.09 per cent from the previous day.

As per the draft note, the petroleum ministry is proposing a price of $2.6 per mBtu as against a current price of $1.8 per mBtu, Rao said. The price of gas sold from other fields, which are privately operated, range from $3-5. Reliance Industries Ltd (RIL) D6 gas is being sold at $4.2.

Rao added the petroleum ministry will soon approach the finance ministry for its comments and then take the proposal to the cabinet.

"As per the proposal, the new price will come into effect retrospectively from April 1, 2009," Rao said. The government regulates the price of natural gas produced from fields awarded before the introduction of the New Exploration Licensing Policy in 1999.

"We want to progressively increase the price of APM gas to match the market price," the official said. At 45 million metric standard cubic metres a day (mmscmd), APM gas currently accounts for over 34 per cent of the country's 130 mmscmd gas availability (which includes the latest production from Reliance Industries' K-G basin). However, the share of APM gas in total availability has been coming down gradually.

ONGC, which sells most of the gas at the regulated price, has been seeking a hike in prices. ONGC Chairman and Managing Director R S Sharma had earlier said the company lost over Rs 3,000 crore in revenues during 2008-09 on sale of natural gas at regulated prices.

Rao said ONGC would start making profits in its gas business once gas prices were increased.