After a Period of Two Years, India is All Set to Witness an Immense Plunge in Natural Gas Prices in April 2020.

  • 24-Feb-2020
  • Journalist: Peter Schmidt

In India, Oil and Natural gas Corporation (ONGC) and Oil India Ltd, are the leading bulk Natural Gas producers. It is expected that a steep reduction by 25 per cent in the price of Natural Gas can be witnessed from April 2020 onwards. In a span of six months, this will be the second time the prices have dropped to such an extent and to its lowest after a duration of two and a half years. The prices are likely to cut to around USD 2.5 per million British thermal units (mmBtu) from USD 3.23 (mmBtu), as well as the prices of the Natural Gas produced from stranded gas reserves will also face the reduction in prices from USD 8.43 mmBtu to 5.50 mmBtu. Prices of Natural Gas are regularly set after every six months, on the 1st of April and October months. Last year, in the month of October, rates of Natural Gas declined from USD 3.69 mmBtu to USD 3.23 mmBtu, in the same way, for the stranded gas reserves, the prices slashed from an all-time hike of USD 9.32 mmBtu to USD 8.43 mmBtu. ONGC is India's largest integrated oil and gas company, accounting for 75 per cent of crude oil and natural gas production by volume, and 17 per cent of domestic refining capacity. The cut in price will lower the earnings of producers like ONGC but will also lead to a reduction in the price of CNG, which uses natural gas as an input. Reduction in the price would impact the revenue of ONGC, which is expected to fall by INR 30 Billion. Effects can also be seen in the revenue of Reliance Industries, which plans to initiate its Natural Gas production in Krishna Godavari Dhirubhai 6 (KG-D6) from the mid of 2020. Not only that, Natural Gas is referred to as the key raw material for the production of fertilizer, especially urea. 70 per cent of the total Urea production in the country is somehow comprised of Natural Gas. Since, change in the price of Natural Gas by USD 1 mmBtu fluctuates the production price of Urea by INR 1600 to 1800 per ton. The price cut would also reduce the subsidy government expenditure to INR 8 billion during the first half of the financial year 2021.

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