The government could announce a new price for domestically produced natural gas at $3.15 per million British thermal units (mmbtu) on Gross Calorific Value (GCV) basis for the six months period beginning April 2016, down from the current rate of $3.82 per mmbtu that had been effective between October 2015 and March 2016. The new price will be based on the average of benchmarks in the gas surplus US, Russia and Canada markets for the one year period between January and December 2015.

The government is yet to officially announced the new price. An ONGC spokesperson refused comment on the impact of the new price. ONGC Director Finance A K Srinivasan had in January said every Dollar decrease in the gas price leads to an impact of Rs 2,000 crore on total volume basis. Based on that assessment, the likely 17 per cent cut in price could impact ONGC earnings by around Rs 1,400 crore.

The new price will not impact Reliance Industries Ltd (RIL) as the price the company is allowed to charge from its gas reservoirs in the Eastern offshore KG-D6 block is capped at $4.2 an mBtu, pending the resolution of an arbitration over cost recovery on account of a shortfall in production from the D1 and D3 discoveries. The difference between the two prices is currently credited to a gas pool account.

The government had cut domestic gas prices by 18 per cent to $3.82 per mmbtu in October last year from the then prevailing price of $4.66 per mmbtu. A day later, Indraprastha Gas Ltd (IGL), the sole supplier of CNG and PNG in the National Capital Region, had responded by slashing CNG and PNG prices by 80 paise per Kilogram and 70 paise per Standard Cubic Meter (scm) respectively. Based on that assessment, the current likely reduction in gas price may bring down CNG prices by 40-50 paise per Kg and PNG prices by over 35 paise per unit.

The government had announced the new formula in October 2014, based on the average price in gas surplus nations. It pushed up prices for the period between November 2014 and March 2015 by 33 per cent to $5.61 a unit from the then $4.2 a unit on an NCV basis. On GCV basis, these went up from $3.79 to $5.05 a unit. Then, the government had cut prices seven per cent to $4.66 a unit on GCV for the six months between April and September 2015.