Thanks to the fall in global gas prices, India’s domestic natural gas prices are set to nearly halve to a 10-year low of $2 per million metric British thermal unit (mmBtu), a move that is expected to benefit city gas distributors (CGDs), fertilizer units and power firms.
The NDA government scrapped the Rangarajan Committee recommendations soon after it assumed office in 2014, instituting its own formula for domestic APM gas prices in India by linking them to 12-month averages of U.S., Canada, Russia and Europe prices. Soon, the Administrative Price Mechanism (APM) prices rose to $5.6/mmbtu from the $4.2 they were at between 2010 and 2014 when they were linked to Reliance’s KG-D6 price, but have been soft since. The prices fell 12.5%, in the last half-yearly reset in October 2019 to $3.6.
The prices of APM gas are set to fall another 45% over the next two resets in April and October 2020 to 10-year lows of $2/mmbtu.
“Sharply lower EU prices on softer LNG are largely to blame, but prices are subdued in gas surplus U.S., Canada and Russia too,” Jefferies said in its research report.
Bad for E&P firms
Analysts believe that lower gas prices would be bad for exploration and production (E&P) firms, while users like Indraprastha Gas Limited, Mahanagar Gas Limited and GAIL would benefit. According to Shell’s LNG Outlook 2020 report, global gas prices softened in 2019 and LNG demand growth in south Asia was notable.
India, Pakistan and Bangladesh imported 36 million tonnes in 2019, an increase of 19% over last year, pointing to emerging growth countries in Asia.