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Natural Gas Prices to rise 20%
The Times of India, May 20, 2010

The price of compressed natural gas (CNG) is expected to rise by 20% but that of piped natural gas (PNG) will be unaffected with the cabinet doubling the rate at which natural gas is marketed by two state-owned exploration majors, it was announced Wednesday.

"The cabinet has approved revision of the administered price mechanism (APM) of natural gas from the present Rs.3,200 mscm to Rs.6,818 mscm," Information and Broadcasting Minister Ambika Soni told reporters here after a cabinet meeting chaired by Prime Minister Manmohan Singh.

The hike relates to the natural gas produced by the Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). Ninety percent of this goes to the power and fertiliser sectors. The impact of the hike on the power sector would be marginal while the selling price of fertilisers is likely to be unaffected.

For customers in the northeast, the government would provide subsidy of 40%. Ten percent of the gas is marketed as CNG and PNG.

Consumers in New Delhi and Mumbai will be impacted as the price of CNG will rise by 20% as a result of the hike, Aporva Chandra, joint secretary in the ministry of petroleum and natural gas, said while explaining the implication of the hike.

"There will be no impact on PNG as its price is linked to that of LPG (liquefied petroleum gas)," Chandra explained, adding that the price of electricity produced by gas-fired power plants could also rise by 2.5 percent.

The new price of Rs.6,818 mscm brings it close to the Rs.7,500 mscm ($4.2 mmbtu) that the government has fixed for natural gas from the Krishna-Godavari basin, Chandra added. The price of ONGC and OIL natural gas was last raised in 2005 and the present hike will be valid till March 31, 2014, as is the case with the K-G gas rate, he said.

Explaining the rationale for the hike, Soni said: "The fields of ONGC and OIL are mature and ageing. Hence, substantial expenditure is necessary to maintain their gas production."

Noting that the cost of equipment had increased manifold in the last few years, Soni added: "ONGC and OIL have been making substantial losses and under-recoveries in their gas business" and the low prices had discouraged them from making investments in their blocks.

"Therefore, it became essential to increase the price of APM gas," she explained.

This apart, the APM production by the two companies was dwindling and was being supplied only to old customers.

"Any new customers wanting to set up capacities or expand cannot get APM supplies. This discourages new entrants as they have to compete with APM customers," the minister pointed out.

Soni also said that the price of natural gas produced by the private operators is much higher than the APM price.

"The price of alternate fuels in energy equivalence terms is many times more than the APM price. Hence, the APM price of natural gas needed to be rationalised and aligned with the market price," Soni added.