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CNG, PNG set to get costlier from next month as 12-14% increase in domestic natural gas price expected

CNG, PNG set to get costlier from next month as 12-14% increase in domestic natural gas price expected

Monday, September 17, 2018 IST

The price of CNG and PNG are set to rise from next month as the government will revise the prices of domestic natural gas for the October 2018-March 2019 period as per the new New Domestic Gas policy. Care Ratings has calculated that the rise in prices could by 12% from the current $3.06/mmBtu to approximately, $3.43/mmBtu.

As per the report, the rise in prices of natural gas will result in costlier CNG, PNG, manufacturing of urea and petrochemicals where natural gas is used as a feedstock. Earlier, news agency PTI had reported that the government might increase the price of domestic natural gas by 14%.

The revised price is likely to be announced on September 28. “Rise in the natural gas price will result in the increase in the cost of manufacturing of urea and petrochemicals where natural gas is used as a feedstock. There will be a rise in the prices of CNG and PNG which will affect the consumers,” Care Ratings said in a report.

“Increase in price of Natural gas will also affect the margins of the power sector and sponge iron industry where it used for the generation of energy,” the report added.

The prices of natural gas are set every six months based on the average rate in gas-surplus nations like the United States, Russia and Canada. While the increase in natural gas price would impact domestic users and some manufacturers, it would augur well for upstream gas exploration companies (ONGC, OIL India, Vedanta, Reliance) as it will result in the increase of realisations.

However, overall, there will be an impact on inflation as well. “The rise in the domestic natural gas price will result in increasing the WPI marginally as crude petroleum and natural gas has a 2.46% weight and in that natural gas has a 0.46% weight,” the report noted.

The natural gas price was hiked to $3.06 per mmBtu from $2.89 per mmBtu for the April-September period. It was the second hike in nearly three years. This time the government is also likely to cap price based on alternative fuels for undeveloped gas finds in difficult areas like deepsea, which are unviable to develop as per the existing pricing formula, PTI reported quoting sources.