India will probably cut the price of natural gas by about 18 per cent in a setback for explorers, a survey by Bloomberg News shows.
The government-set price will track a global decline and fall to less than $2.5 per million British thermal units for October through March from $3.06 currently, according to the average of 12 industry estimates. India reviews the rate half-yearly, using a formula capturing international trends. The announcement is due this week.
Such a reduction would take the price to less than half the $5.05 per million British thermal units the government set when it first rolled out the formula in 2014. That could put pressure on the margins of explorers such as Oil and Natural Gas Corp. and Mukesh Ambani’s Reliance IndustriesBSE -1.92 % Ltd., while benefiting users including fertilizer companies and power generators.
We’re highly concerned about the fall in prices,” said Ashu Sagar, the secretary general at the Association of Oil and Gas Operators, whose members include the biggest explorers and gas producers. “The formula now doesn’t offer any floor.”
India has struggled to follow US and Europe in giving natural gas a greater role for electricity production in place of polluting coal power. Lower prices threaten to hamper the investment needed to turn around flagging output of the fuel.
“Gas prices are determined by an approved formula linked to some international market rates – if prices of those markets have fallen, it will reflect on domestic prices,” Oil Secretary Kapil Dev Tripathi said on September 21.
Tushar Pania, a spokesman for Reliance Industries, didn’t respond to an e-mail seeking comment on the upcoming revision of gas prices.
State-run ONGCBSE 0.61 %, the biggest explorer in India, estimates that each dollar decrease in gas prices curtails annual revenue by 42 billion rupees ($630 million) and profit by 24 billion rupees.
ONGC Chairman Dinesh Kumar Sarraf said the government may step in if parts of the exploration industry become unviable because the natural gas price falls too far.
“We’re fully confident that if certain things are not viable, the government would help the industry and us,” Sarraf said in an interview, citing the step earlier this year to allow higher prices for deep-sea fields as an example.
The current gas-price formula is based on US, Canadian, UK and Russian rates. Sagar from the trade association said the government needs to reassess the formula as it’s based on prices from countries where there is an oversupply of gas, unlike in India.
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