India likely to slash domestic natural gas price by 25%

KOLKATA (miningweekly.com) – India is likely to slash domestic natural gas prices, in view of the fall in global prices and the forecast of sustained low demand in key markets in the wake of the coronavirus spread.

Sources said that as per the administered price mechanism (APM) governing the domestic natural gas price, the government could announce a reduction of as much as 25% at $2.5-million metric British thermal unit (mmBtu) for the six-month period starting April 1, 2020 and bring it down to a two-and-half-year low.

In the case of fields categorised as “difficult” that attracted a higher price under the APM, the price was expected to be reduced to $5.50/mmBtu from $8.43/mmBTU at present , the sources said.

Under the APM, India’s domestic natural gas price was determined based on volume-weighted average of prices at Henry Hub, in the US, National Balancing Point, in the UK, Alberta, in Canada and Russia with a gap of three months.

The reduction in domestic natural gas pricing would hit the national oil and gas exploration and production major hardest, which accounted for 75% of domestic production of crude oil and gas and has already stated that it would be forced to re-look at viabilities of its ongoing greenfield development projects in the case of prices falling below the $3/mmBtu level.

On the flip side, the fall in domestic and international gas prices has opened up a window for reviving gas-based power plants in the country, which have been idled since September 2018 when domestic gas prices had hit a high of $11.30/mmBtu. These gas-based power plants accounted for about 7% of India’s total power generating capacity.

Reports suggest that taking advantage of low spot prices of liquefied natural gas (LNG) at present, India is set to import 2.36-million tons of LNG during February, the highest monthly inward shipment ever, following 2.3-million tons shipped in during October 2019.