Gas Price To Go Up, Though Less Than UPA Plan

NEW DELHI: CNG and piped natural gas prices are set to go up shortly, though not as much as feared. Indications emerging from hectic discussions between the oil ministry and Prime Minister’s Office over the weekend suggest that gas price may be jacked up from $4.2 a unit to $5.5-6.8 per unit.

This increase will be almost $2 less than the $8.4 per unit price that was expected on the basis of formula adopted by the UPA government. But still, the hike will impact daily cost of living, particularly in a city such Delhi where CNG is used for public transport and PNG is increasingly becoming the choice for cooking.

Higher gas price will also have marginal impact on overall cost of power by pushing up electricity tariff for gas-fired plants, which account for roughly 8% of the installed capacity in the country.

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Assuming the government finally settles for a price of $6.8, CNG price in Delhi would go up by approximately Rs 7.50 per kg. Hypothetically even after a new gas price is announced, CNG would still be cheaper than what it cost in February. CNG price was reduced by Rs 14.90 per kg and PNG by Rs 5 per unit in February after the Centre said the entire gas demand would be met with cheaper domestic gas.

Subsequently, CNG price in Delhi was raised by Rs 2.95 per kg in May due to falling rupee and rise in operational costs. So, even after this hike, the current price is Rs 11.95 cheaper than February level. Thus the fuel would be still cost Rs 4.45 less than in February.

The discussions within the government are focused on simplifying the pricing formula to avoid doubling of present gas price. In all likelihood, the new formula would have among the benchmarks, markets with friendlier gas price. Thus Russia is expected to replace Japan, a country that imports gas in ships at very high prices.

The new formula is also expected to specify pricing method based on net calorific value (NCV), which works out 10% cheaper than gross calorific value (GCV). NCV is calculated on reduced volumes upon deducting impurities such as water or other gaseous content present in natural gas.

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There is also a possibility that the government could opt for a differential pricing by applying the latest pricing only to fields that are currently in production. Others that come on stream in near future, such as state-run ONGC’s marginal fields, would be allowed to sell at market price through tender system.

Such a move is seen serving two purposes: One, it will mark a gradual shift towards market-determined pricing shift-- the original aim of oil sector reforms. Two, in a single stroke it would brighten investment climate by removing clouds over viability of new discoveries – mostly in deep and frontier waters.

Another option on the table also envisages asking ONGC, the biggest beneficiary of any price revision, to part some of the money to share increased fuel subsidy. Taking off on this, there are also suggestions that the government could deregulate diesel price while simultaneously reducing Central levy on the fuel in the Budget to soften the blow on consumers. ONGC then can be asked to share the increased burden on fertilisers.

Prime minister Narendra Modi has held two rounds of brainstorming sessions, mainly focused on the issue, with oil minister Dharmendra Pradhan and petroleum secretary Saurabh Chandra. After a five-hour session on Friday evening, the PM held another round of discussion on Sunday that was also attended by finance minister Arun Jaitley.


The framing of policy on gas pricing became a hot potato after a political storm arose during elections over allegations of crony-capitalism, public interest litigation in the Supreme Court as well as arbitration notices served against the government by Reliance Industries Ltd and BP Plc.

But subsequent question whether Reliance Industries Ltd should be allowed higher gas price due to drop in output from its KG-D6 field delayed notification. Later, the Election Commission stepped in after a letter from AAP leader Arvind Kejriwal, sending the entire issue into a tailspin.