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CNG, Cooking Gas to Cost Less as Rates Cut by 20 Percent

Pay less for piped cooking gas and compressed natural gas soon as a result of 20 per cent drop in rates of natural gas.

Published: 01st April 2016 04:48 AM  |   Last Updated: 01st April 2016 04:48 AM   |  A+A-

NEW DELHI: Pay less for piped cooking gas and compressed natural gas soon as a result of 20 per cent drop in rates of natural gas. This is third reduction in last one year.

Domestic gas prices will be reduced by 20% to $3.06/mmbtu (million British thermal unit) for April-September 2016 period, as determined by the administered pricing formula that tracks a basket of global oil and gas prices.

“The move will benefit fertiliser, power and steel companies who heavily rely on natural gas. This reduction will ease their working capital burden. This cut is not a shocker as it was expected,” RS Sharma, former chairman of ONGC said.

On a net-calorific value (CV) basis, the gas price will be $3.4 per mBtu as compared to $4.24 currently.

The reduction in natural gas prices would mean lower raw material cost for CNG and natural gas piped to households (PNG) and would translate into reduction in retail prices.

It also announced the cap price based on alternate fuels for undeveloped gas finds in difficult areas like deepsea which are unviable to develop as per the existing pricing formula.

The gas producers will see an impact of Rs  3,000-3,200 crore in revenue (and almost equally in profits) during first half of FY16, according to estimates of research analysts.

Analysts at Religare Institutional Equities say that the new price comes close to lifting costs for gas production for ONGC and Oil India of about $3/mmbtu.

For GAIL, it will have a positive bearing on demand thereby leading to higher pipeline utilisation. GAIL’s LPG business margins can also expand up to 10%, estimate analysts.

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