(Bloomberg) -- India has cut the price for most of its natural gas produced from domestic fields to a level last seen in 2010 and well below the production cost of Oil & Natural Gas Corp. and Oil India Ltd.
The price of gas produced from fields awarded to state explorers has been fixed at $1.79 per million British thermal units, according to the oil ministry’s Petroleum Planning & Analysis Cell. It also cut the ceiling price for gas produced from difficult fields by almost 28% to $4.06/mmBtu.
The new prices, effective for six months from Oct. 1, will make the gas business unprofitable for producers and undermine investments that are key to future production at a time when Prime Minister Narendra Modi aims to increase the share of natural gas in India’s energy mix to 15% by 2030 from about 6%.
A global glut has led to a price crash that has affected India’s gas rate, which is arrived through a formula linked to some international gas markets such as the U.S., Canada, Russia and the U.K. ONGC’s average cost of gas production is about $3.7/mmBtu, the company said on June 30. Oil India’s break even cost for gas is $2.25 a unit, Chairman Sushil Chandra Mishra said on Sept. 29.
ONGC and Oil India together make up nearly 85% of India’s gas production. ONGC produces more than 60 million standard cubic meters of gas daily from fields where the government regulates the price.
“Domestically, the extremely low gas prices are a cause of anxiety for gas producers,” ONGC said in its latest annual report, adding most gas projects are running cash-negative at current tariffs. “Without the necessary policy support and fiscal incentives the prospect of a gas-based economy looks difficult.”
The oil ministry is considering a proposal of a floor price for gas that’s regulated by the government to shield explorers, according to people with knowledge of the matter. It could be linked to the popular benchmark Japan-Korea Marker that is used for LNG tariff in North Asia with a discount.
India will phase out price controls in natural gas and make it market linked, Oil Minister Dharmendra Pradhan said at the BloombergNEF Summit in June.
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