"The cabinet has approved revision of the administered price mechanism (APM) of natural gas from the present Rs.3,200 mscm to Rs.6,818 mscm," Information and Broadcasting Minister Ambika Soni told reporters here after a cabinet meeting chaired by Prime Minister Manmohan Singh.
The hike relates to the natural gas produced by the Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). Ninety percent of this goes to the power and fertiliser sectors. The new price of Rs.6,818 mscm brings it close to the Rs.7,500 mscm ($4.2 mmbtu) that the government has fixed for natural gas from the Krishna-Godavari basin.
The price of ONGC and OIL natural gas was last raised in 2005 and the present hike will be valid till March 31, 2014, as is the case with the K-G gas rate, he said.Explaining the rationale for the hike, Soni said: "The fields of ONGC and OIL are mature and ageing. Hence, substantial expenditure is necessary to maintain their gas production."Noting that the cost of equipment had increased manifold in the last few years, Soni added: "ONGC and OIL have been making substantial losses and under-recoveries in their gas business" and the low prices had discouraged them from making investments in their blocks."Therefore, it became essential to increase the price of APM gas," she explained."The price of alternate fuels in energy equivalence terms is many times more than the APM price. Hence, the APM price of natural gas needed to be rationalised and aligned with the market price."
Gas sourced from other fields such as the Reliance Industries-operated D6 block in the KG basin is sold at $4.20 per mBtu, while gas from the British Gas-operated Panna, Mukta and Tapti fields is priced at $5.73 per mBtu. Companies pay $5.50 per mBtu for gas from the Ravva field operated by Cairn India in Andhra Pradesh.After the revision of prices, power companies will have to fork out substantially higher amounts for APM gas. They buy half the APM gas produced, while fertiliser companies consume 35 per cent. The rest is consumed by small and medium enterprises apart from city gas distributors.
The hike relates to the natural gas produced by the Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). Ninety percent of this goes to the power and fertiliser sectors. The new price of Rs.6,818 mscm brings it close to the Rs.7,500 mscm ($4.2 mmbtu) that the government has fixed for natural gas from the Krishna-Godavari basin.
The price of ONGC and OIL natural gas was last raised in 2005 and the present hike will be valid till March 31, 2014, as is the case with the K-G gas rate, he said.Explaining the rationale for the hike, Soni said: "The fields of ONGC and OIL are mature and ageing. Hence, substantial expenditure is necessary to maintain their gas production."Noting that the cost of equipment had increased manifold in the last few years, Soni added: "ONGC and OIL have been making substantial losses and under-recoveries in their gas business" and the low prices had discouraged them from making investments in their blocks."Therefore, it became essential to increase the price of APM gas," she explained."The price of alternate fuels in energy equivalence terms is many times more than the APM price. Hence, the APM price of natural gas needed to be rationalised and aligned with the market price." As per an initial calculation, ONGC may be able to save a revenue loss of Rs 5,000 crore in this current year that will boost its bottom line proportionately. “It will wipe out our under-recoveries (revenue loss) on account of gas production,” ONGC chairman & managing director RS Sharma told.The company lost a revenue of Rs 4,700 crore in 2008-09 for selling APM gas below cost.
NTPC CMD RS Sharma said the fuel price increase will have an impact of Re 1 per unit on discoms and will ultimately passed on to the consumer.For assured long-term supplies of gas, NTPC last September renewed its APM agreement till 2021. Gas sourced from other fields such as the Reliance Industries-operated D6 block in the KG basin is sold at $4.20 per mBtu, while gas from the British Gas-operated Panna, Mukta and Tapti fields is priced at $5.73 per mBtu. Companies pay $5.50 per mBtu for gas from the Ravva field operated by Cairn India in Andhra Pradesh.After the revision of prices, power companies will have to fork out substantially higher amounts for APM gas. They buy half the APM gas produced, while fertiliser companies consume 35 per cent. The rest is consumed by small and medium enterprises apart from city gas distributors.
More over However, ICRA believes the domestic gas prices have the potential to see further hikes in the medium to long term as the capital expenditure for development of newly developed gas fields has sharply escalated in the recent past, and even the increased price levels may not result in commercially acceptable returns for the developers. Furthermore, imports of costlier LNG are anticipated to increase in the medium term, as the domestic supplies may not be sufficient to meet the demand from several end users, which will also be facilitated by deeper penetration of inter-state gas transmission pipelines over the medium term.
ReplyDelete. Overall, ICRA believes the APM gas price hike is a positive development for the orderly growth of the domestic gas market, as more than 65% of the market is already deregulated in terms of prices and a continued controlled pricing regime was distorting the consumers’ price expectations. With the proposed move, ICRA believes the market will get used to the market determined pricing of gas, as barring North East consumers, others will now have to buy gas at market determined rates. Moreover, with gas production from the nomination blocks steadily declining, incremental domestic demand is , in any case, being met by production from new domestic fields and imported LNG, whose prices are much higher than hitherto prevailing APM gas price.