New Delhi, Sept. 30: The government today cut natural gas price by a steep 18 per cent to $3.82 per million British thermal unit (mBtu) from $4.66 mBtu on gross calorific value (GCV) basis in accordance with the formula approved in October last year.
The new price will be effective for the six-month period beginning tomorrow.
Prices will fall to $4.24 per mBtu on net calorific value (NCV) basis from $5.50 per mBtu, the oil ministry said.
The reduction, the steepest ever, will hit producers such as state-owned ONGC as well as the Centre whose earnings from royalty and income tax will dip around Rs 800 crore during the rest of the fiscal, according to industry estimates.
State government earnings from VAT on gas sales will also fall over Rs 250 crore.
ONGC director (finance) A.K. Srinivasan said the PSU's net profit would take a Rs 1,059-crore hit.
The reduction will also dent the revenues of private producers. However, it will not make much of a difference to Reliance Industries as its earnings from the eastern offshore KG-D6 gasfield have been set at $4.20 per mBtu. The difference is kept in a bank account till the company settles its dispute with the Centre on output falling at the Krishna-Godavari basin.
"Gas prices going below $4 per mBtu will be a significant dampener for the domestic E&P (exploration and production) industry, which may result in a tepid response from bidders during the forthcoming rounds of the New Exploration & Licensing Policy," K. Ravichandran, senior vice-president at Icra, said recently.
Private players such as Reliance and UK major BP have been holding back investments worth billions of dollars to develop deep-water gas discoveries off the east coast because of low gas prices.
However, the price cut will benefit power and fertiliser producers apart from the government, which subsidises fertiliser to keep it affordable to farmers.
"The city gas distribution (CGD) companies will gain the most as the segment gets 100 per cent allocation of cheap domestic gas, which will enhance CGD margins. Indraprastha Gas, will be the biggest beneficiary. GAIL and GSPL shall gain marginally," Jal Irani, analyst with brokerage Edelweiss Securities, said.
