Gas price cut to $3.82; will dent govt revenues by Rs 800 cr

Natural gas prices were today cut by a steep 18 per cent to $3.82 per unit, the biggest reduction in rates ever, that will dent government revenues by about Rs 800 crore and hit profits of producers like ONGC.

Natural gas prices, as per the formula approved by the government in October last year, will fall to $3.82 per million British thermal unit (mmBtu) on gross calorific value (GCV) basis for six months, beginning October 1, from the current $ 4.66 per mmBtu, according to the Oil Ministry.

On net calorific value (NCV) basis, the new gas price for October 1 to March 31, 2016 would be $4.24 per mmBtu as compared to $5.18 currently.

The reduction, the steepest ever, will hit producers like state-owned Oil and Natural Gas Corp (ONGC) as well as central government whose earnings from royalty and income tax will dip by about Rs 800 crore during the remainder of the fiscal, according to industry estimates.

State government earnings from VAT on gas sales will also fall by over Rs 250 crore.

For ONGC, the move will results in a hit of Rs 1,059 crore on its net profit, its Director (Finance) A K Srinivasan said.

The reduction in price is also likely to dent revenues of private gas producers but for Reliance Industries it would not make much of a difference as its earnings from eastern offshore KG-D6 gas field has been capped at 2014 price of $4.20 with incremental rate going towards meeting deficit created because of output lagging targets.

Using prevailing price in gas surplus nations like the US, Russia and Canada, the government had in October last year announced a new pricing formula that led to rates rising by about 33 per cent to $ 5.61 per mmBtu on NCV basis for a period up to March 31, 2015 from the long-standing price of $4.2.

The rates, on net calorific value (NCV) basis, dropped to $5.05 per mmBtu for six month period beginning April 1, 2015.

The price cut today is the second reduction in rates ever - the first being on April 1.