CNG, PNG prices to rise sharply as gas price increased by 62%

NEW DELHI: The government raised the price of natural gas produced from domestic fields by 62% to $2.9 per unit, the first increase in two years that will hit consumers by steeply pushing up cost of CNG and PNG but boost income of producers such as Reliance Industries Ltd, Cairn India and state-run ONGC.
The new gas price will take effect from Friday and CNG and PNG prices are likely to see a 10-11% upward revision in cities such as Delhi and Mumbai on Saturday or Sunday.
Higher gas prices will increase the burden on user industries just when the economy was recovering from the impact of the deadly second wave of Covid-19 infections.
But even after the revision, CNG will retain its advantage due to record prices of petrol and diesel, which have started crawling up again, according to Prashant Vasisht of rating agency ICRA.
Petroleum Planning and Analysis Cell, the oil ministry’s market tracker that revises domestic gas prices on April 1 and October 1 every year as per a 2014 formula, also raised the ceiling price for gas produced from difficult fields such as RIL’s KG-D6 block by 69% to $6.13 per unit.
ICRA’s Sabyasachi Majumdar said the increase in gas prices will provide only a limited relief to producers as the new price is still insufficient, in absolute terms, for covering the cost of production.
Higher gas prices would increase the subsidy burden for the government. Every $1 per unit increase in the pooled price at which gas is supplied to fertiliser manufacturers, the subsidy requirement rises by around Rs 4,500-5,000 crore. The current budgetary allocation for fertiliser subsidy will prove to be inadequate, ICRA said.
This is the first increase in gas prices since April 2019 and has been driven by hardening of benchmark rates at global hubs.
According to Vasisht, operators of city gas networks could raise raise CNG price by Rs 4.5-4.7 per Kg and PNG price by Rs 2.5-2.7 per unit. This is assuming the operators maintain their absolute margins.
For the power sector, costlier domestic gas would lead to an increase in the variable cost of generation by about 40%, but the extent of the impact on consumers would be limited due to subdued utilisation of 20-25% of the gas-based power plants, ICRA said.

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