CNG And PNG Prices Will Move Northwards in India as Domestic Natural Gas Prices have Hiked to Record High of USD 8.57 mBtu

On Friday, the government raised the price of domestic natural gas to USD 8.57 per mBtu, up by 40 percent on gross calorific value during the second half of Forecast Year 2023 that began on October 01, 2022 in comparison to the April, 2022 to September, 2022 period.

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It is also stated by the MOPNG’s Petroleum and Analysis Cell that the gas price ceiling for the extraction process in challenging fields like deep, ultra-deepwater and high-temperature fields to obtain critical commodities have been increased to about USD 12.46 per million British thermal units (mBtu) up by 25 percent. These price rises are a result of the change in international prices.

India's half of natural gas demand is fulfilled by domestic production, but the other half is imported as liquified natural gas (LNG).

Previous High

Since the introduction of the New Domestic Gas Pricing Guidelines in November 2014 by the government, this is the highest the price has soared for natural gas procurement in the country. The previous high was during the current fiscal year's first half at USD 6.10 per mBtu. Prior to this, the highest price recorded from November 2014 - March 2015 was USD 5.05 per mBtU.

Likewise, the highest gas ceiling price from challenging fields was in the first half of the forecast year 2023, at USD 9.92 per mBtu. Before the first and second half of the forecast year 2023, the highest price recorded was between April-September 2019 at USD 9.32 per mBtu.

New Variable

On Thursday, it was reported that if the government decides to ease the effect of the highest international prices on record in the domestic industry, it may present a new component or variable in order to calculate the administered price mechanism (APM) rate, which would range between USD 8-8.5 per mBtu.

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Administered price mechanism (APM) is based on the prices of gas at Alberta Gas Reference (Canada), Russia Gas Henry Hub (US), and NBP (UK) over a time frame of a year with a slowdown of quarter one. Usually, a USD 1 per mBtu rise in the price of gas interprets as approx INR 4-4.5 per kg rise in the prices of CNG. The current CNG prices in Delhi are INR 75.61.

CNG-Powered Vehicle Sales Affected Negatively Due to The Price Rise in Global Natural Gas

The target for CNG vehicles in the industry dipped to 5,00,000-5,50,000 units at the end of the financial year March 2023, lower by 25-30 percent compared to the 7,00,000-7,50,000 estimate during the start of the year. During the last fiscal year in India, around 2,61,000 units of CNG passenger vehicles were sold.

A substantial rise in the prices of natural gas internationally led the Indian automakers to slice their production target of CNG-powered vehicles, as they predict that the already high rates to leap further in the revision's next round and strain demand.

According to Procurement Resource, the government increased the CNG and PNG prices as the domestic natural gas price soared in India to a record high of USD 8.57 mBtu. The significant price rise for natural gas globally led the automakers in India to cut production of CNG-powered vehicles as it was foreseen that the high rates would further rise in the next round's revision and put stress on demand.