Natural Gas Prices in India to Fall 10% in Three Years

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Researched by Industrial Info Resources India (Delhi, India)--Natural gas prices in India are likely to slip about 10% in the next three years, due to the variables included in the new pricing formula, says Goldman Sachs (NYSE:GS) (New York, New York). The prices of natural gas in India are among the lowest in the Asia-Pacific region. The only nations with lower rates are Vietnam and Malaysia, with $5 and $5.20 per million British thermal unit (mmBtu), respectively.

China pays gas explorers $11.90 per mmBtu rate for new projects, while Indonesia and the Philippines price the fuel at $11 and $10.50, respectively.

According to a recent report from Goldman Sachs, the price of currently produced gas is likely to fall to $5 per mmBtu over the next three years from the current rate of $5.61 per mmBtu, implying falling margins as costs rise, thus making India an unattractive exploration and production destination. Clear directions are thus needed on gas pricing for higher-cost projects, such as deepwater, to induce more capital spending projects for exploration and production (E&P).

India's natural gas pricing formula is based on pricing of all domestic gas at weighted average of rates prevalent in the gas-surplus economies of the U.S., Mexico, Canada and Russia.

The new gas price regime is to provide an additional $596 million per year in revenue from higher royalties, petroleum profits and taxes to the nation. About 80% of the additional revenue will go to government companies.

Exploration and production activities are crucial for the nation to reduce its dependence on liquefied matural gas (LNG) imports. India's natural gas production declined 2.9% to 2.81 billion cubic meters (bcm) in November 2014 over a year ago.

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