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CNG Prices to Get Costly as Govt. Hikes Natural Gas Prices by 40 Percent

Every six months, on April 1 and October 1, the government sets the fuel price based on rates common in countries with gas surpluses like the US, Canada, and Russia in a year with a lag of one quarter.

Binita Kumari
The government has established a committee to review the pricing formula since increasing gas prices could potentially feed inflation.
The government has established a committee to review the pricing formula since increasing gas prices could potentially feed inflation.

Prices of natural gas that are used to produce electricity, fertilizer, and CNG to fuel automobiles were increased sharply by 40% on Friday to record highs in line with a global firming up of energy prices.

The Petroleum Planning and Analysis Cell of the Oil Ministry increased the price paid for gas generated from old fields, which account for around two-thirds of all gas produced in the nation, from USD 6.1 per million British Thermal Units to USD 8.57 per million BTUs (PPAC).

It said that the price of gas from difficult and more recent fields, such as those in the deep sea D6 block in the KG basin, managed by the Reliance Industries Ltd and its partner bp plc, was increased to USD 12.6 per mmBtu from USD 9.92.

These are the highest pricing for managed/regulated fields and free-market areas, such as ONGC's Bassein field off the coast of Mumbai (such as the KG basin). Additionally, since April 2019, rates have increased three times. This rise is a result of rising benchmark worldwide pricing.

Every six months, on April 1 and October 1, the government sets the fuel price based on rates common in countries with gas surpluses like the US, Canada, and Russia in a year with a lag of one quarter.

Therefore, the price for the period of October 1 to March 31 is based on the average price between July 2021 and June 2022. During this time, international interest rates skyrocketed.

The government has established a committee to review the pricing formula since increasing gas prices could potentially feed inflation. The team, led by former planning commission member Kirit S. Parikh, was instructed to submit a report by the end of September with a "fair pricing to the end-consumer" recommendation. The government developed a formula for locally produced gas in 2014 using pricing in nations with gas surpluses.

Till March 2022, the rates predicted by this method were moderate and occasionally less than the cost of production, but beyond that point, they spiked rapidly, reflecting the increase in worldwide rates following Russia's invasion of Ukraine.

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