01 October 2015, News Wires – The Indian government has vastly decreased the price of natural gas for domestic producers in a move that was widely expected and many fear may harm further exploration efforts off the country.
The price has been chopped 18% to $3.82 per million British thermal units on a gross calorific basis as against a previous level of $4.66 per MMBtu, the Ministry of Petroleum & Natural Gas revealed on Wednesday.
On a net calorific basis the price has fallen from $5.18 per MMBtu to $4.24 per MMBtu.
The measure will be in effect for six months, from 1 October to 31 March, it added.
India was known to be nearing a cut in the price, with some industry players expecting it to fall in the range of between $3.75 and $3.85 per MMBtu.
Weighted average prices at Henry Hub in the US, the UK’s National Balancing Point, as well as values in Alberta, Canada and Russia are taken into account when calculating the domestic gas price in India.
State-owned Oil & Natural Gas Corporation and private sector giant Reliance Industries are likely to be the most affected by the price cut, as lower gas prices are expected to dent their profits and hit investments.
Analysts have warned that lower gas prices would have a negative impact on the domestic oil and gas industry and might lead to a muted response to future licensing rounds.
“Gas prices going below $4 per million Btu will be a significant dampener for the domestic E&P industry, which may result in a tepid response from bidders during the forthcoming rounds of New Exploration & Licensing Policy,” K Ravichandran, senior vice president at analysts ICRA, said recently.
Private sector players such as Reliance and UK supermajor BP have been holding back on billions of dollars worth of investments for developing deep-water gas discoveries off the east coast due to low domestic gas prices.
The government plans to announce soon a gas price premium for deep-water, ultra-deepwater and other challenging fields made after November 2014.