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Oil Ministry today approached the Election Commission for approval to announce near doubling of natural gas prices to about $ 8 from next month.The Cabinet Committee on Economic Affairs (CCEA) had in December last year decided to price all domestically produced gas by both public and private sector firms at an average price of LNG imports into India and benchmark global gas rates from April 1, 2014.

The price to be applicable from April 1 is to be announced sometime next week and before that Oil Secretary Saurabh Chandra met Chief Election Commissioner V S Sampath. Officials said Chandra submitted papers pertaining to new gas pricing formula to the Election Commission. The price formula was approved by the Cabinet months before the code of conduct for coming general elections came into force.

The EC will give its decision after stuyding the case. The pricing formula will be effective on April 1, 2014 for a period of five years. The new rates, which will change every quarter based on 12-month average of global rates and LNG import price with a lag of one quarter, will apply to all gas produced by both public sector firms like ONGC and private companies like Reliance Industries Ltd.

The price for April to June 2014 will be calculated based on the averages for the 12 months ended December 31, 2013), they said adding the rate April is likely to be around $ 8 per million British thermal unit as against current $ 4.2. Officials said after the price announcement, the bank guarantee that RIL would have to give will also be indicated.
The CCEA had on December 20 decided to allow RIL to almost double the price of natural gas from April, 2014 provided the firm gave a bank guarantee to cover its liability if gas-hoarding charges are proved.

The bank guarantee, which will be equivalent to the incremental revenue that RIL will get from the new gas price, will be encashed if it is proved that the company hoarded gas or deliberately suppressed production at the main Dhirubhai-1 and 3 (D1&D3) fields in the eastern offshore KG-D6 block since 2010-11, they said. Considering a gas price of around $ 8, RIL and its partners BP plc of UK and Canada's Niko Resources will have to give around $ 100 million in bank sureties.

"Prices will be revised quarterly and, in our view, will hange by $ 0.1-0.5 per mmBtu for every $ 10 change in oil prices given the linkage to LNG pricing," Barclays said in a research note. It estimated gas producers to garner $ 4 billion in revenue from higher gas prices from 2014-15 while government will rake in an additional $ 505 million from royalty, profit share, taxes and dividend. After paying $ 360 million in additional fertiliser subsidy resulting for higher input gas cost, the government will be left with $ 101 million, it said.

Source-On Request