Oil & Gas

22 Feb 2022

Global Crunch Likely to Double Local Gas Prices

22 Feb 2022  by   
The full force of the global gas crunch will hit home in April: domestic gas prices will double, driving up costs of cooking, commuting and electricity, while increasing the fertilizer subsidy bill for the government.


An accelerated recovery in energy demand from the covid-lows coupled with inadequate supply expansion in 2021 vaulted prices to record highs, sending shockwaves through the global economy. Domestic industries are already paying higher prices for LNG imported under long-term contracts where rates are linked to crude oil and have sharply cut purchases from the spot market where prices have been berserk for months.

But the most dramatic fallout will unfold in April when the government revises domestic price of natural gas, which industry executives and analysts expect to rise from the current $2.9 to $6-7 per mmBtu. The price ceiling for gas from deep-sea fields will rise from $6.13 to about $10, as per Reliance Industries, which is also auctioning some gas next month from a field with no price restrictions and has set a floor rate linked to crude oil that at at current prices would be about $14 per mmBtu.

Domestic natural gas prices are determined every April and October as per a formula fed by price data from international hubs. April price will be based on international prices from Jan to Dec 2021.

Every dollar rise in domestic natural gas price would require an increase in the price of CNG by ₹4.5 per kg, according to AK Jana, managing director of Indraprastha Gas Ltd. This means a CNG price hike of roughly ₹15 per kg.

"For CNG vehicles, the cost arbitrage with petrol is currently around 55%. If petrol prices keep rising, arbitrage will be maintained. But if oil prices stop rising or fall, it will be different. If the cost arbitrage is 40% or more, the conversion to CNG may not be affected," said Jana.


More News