The production of domestic natural gas fell by 12.9 per cent year-on-year (yoy) to 13,939 million standard cubic metres (mmscm) during April-Septmber 2020 as the operations have become increasingly unviable for the gas companies due to decline in selling prices. The gas output declined by 11.2 per cent yoy in September 2020 to 2,279 mmscm. The domestic natural gas production caters to about 51 per cent of India’s gas requirements.

According to Care Ratings, the gross production of domestic natural gas is expected to fall by 10.6 per cent in 2020-21 owing to lower gas price. At present, the price for gas produced from local fields has been revised to an all-time low of $1.79 per million British thermal unit (MMBtu) by the government, which is much below the breakeven point for most fields, states Care Ratings.

In 2019-20, the domestic natural gas output had fallen by 2.8 per cent yoy 31,168.4 mmscm. Oil and Natural Gas Corporation (ONGC) is expected to face a loss of around Rs 70 billion in the current fiscal year from its gas businesses as more than 95 per cent of its gas is currently being sold at low rates determined by the government. The average gas output cost of ONGC stands at $3.7 per MMBtu.

The government has now formed a committee to change the formula for determination of gas prices. Currently, the domestic gas price is linked to the weighted average price of four global benchmarks, namely US, UK, Canada and Russia. However, domestic tariffs are expected to be linked with the Japan Korea Marker benchmark, which is typically higher than the rates in aforementioned markets. Besides, there might also be a floor price which will not let rates fall below a certain threshold.