Gas Price Booms By 40%: All You Need To Know
There is an old belief that there are no winners in war. While the loss of life is a common repercussion, the cascading impact it has on the world economy, right to a citizen's pocket, that too in another country has several nuances associated with it. One resounding impact has been the increase in the price of natural gas, which has gone up by 40 percent at its location of production.
In numbers
As per an order from the Oil and Natural Gas Ministry, the price has gone up to USD 8.57 per million British thermal units from the current USD 6.1. This is the rate of the gas produced from the oil fields, which is about 66 percent of all the gas produced in the country. The price of gas at older gas fields is different from the new ones. In fact, Relaince recently assessed the Krishna Godavari (KG) field to be a ‘difficult' field, that is, the price of extraction there is higher. The price will be hiked to USD 12.6 per million British thermals. The good part is that 66 percent comes from the older gas fields, which is cheaper. These are record high prices rill date. This situation was not wholly unprecedented given that prices have increased steadily since April 2019. These are the highest rates administered by fields like ONGC’s Bassein field off the coast of Mumbai coast and free market areas like the KG basin.
What will be the impact?
When seen from the producer’s angle, it will be beneficial for them. A lot of producers have expressed risks of potential loss had the government not jacked up the prices. However, it does not seem lucrative when viewed from the consumer’s perspective. A higher price means an increase in fertilizer price because natural gas is a key component of manufacturing. This will have an impact on the farmer community, which will ultimately lead to inflation in food prices for the common man. It is also converted to Compressed Natural Gas (CNG) for cooking purposes. It also means increase in piped gas, which has risen by 70 percent in the last year. As per some estimates, the CNG price has already gone up by INR 4 per kilogram. There will not be any relief in the future as the global gas market is expected to remain tight in the future as per International Energy Association (IEA). “Global gas consumption is expected to drop by 0.8 percent in 2022 – the result of a record 10 percent contraction in Europe and static demand in the Asia-Pacific – and grow just 0.4 percent next year.” The IEA categorically stated. The only saving grace is the low percentage of electricity produced by natural gas, which will spare the household light bills from blowing up. This comes at a time of soaring inflation, when the RBI has hiked up the repo rate to 5.9 percent.
Who decides?
In a nutshell, the government sets gas prices twice a year on April 1 and October 1. This price is based on the rates prevalent in gas-rich countries like USA and Russia, with the lag of one quarter. For instance, the price announced on October 1 is the average of price from July 2021 to June 2022. This was also the time when global natural gas prices were shooting up, especially because of the Russia-Ukraine war. This is a formula being used by the government since 2014, which they are working to change now. In India, a committee under the chairmanship of former planning commission member Kirti S. Parikh has been set up to review the pricing formula. They are trying to come up with a fair price for consumers. This makes sense given the government target of doubling the share of natural gas in the primary energy basket to 15 percent by 203 from the present 6.3 percent. It is also in line with government’s plan of installing 500GW renewable energy capacity by 2030. In the present scenario, the only winners are the producers, and like most inflationary scenarios, the brunt has to be borne by the common man.
