A worker unloads liquefied petroleum gas cylinders after an increase of RS.25 (US$0.34) per cylinder in Hyderabad on September 2, 2021. Photo: AFP

The Indian government has more than doubled the price of domestically-produced natural gas on the back of soaring global energy prices. The new rates will kick in from April 1 and will be valid for six months.

This is expected to add to overall inflation as the price of gas sold to households, the power sector, industries and fertilizer firms will rise.

An announcement made by the Petroleum Planning and Analysis Cell of the federal oil ministry stated that the price of gas from regulated fields of the state-owned Oil and Natural Gas Corporation and Oil India Ltd will rise to a record $6.10 per million British thermal units from the current $2.90.

The rate paid for gas from difficult fields like deepwater will rise to $9.92 for April-September from $6.13, the notification stated. The gas generated by Reliance Industries at its deepsea KG-D6 block will fall in this category.

These are the highest prices ever paid to Indian gas producers. The government sets the price of gas every six months – on April 1 and October 1 – each year based on rates prevalent in the US, Canada, the UK and Russia benchmarks – the US Henry Hub, Canada Alberta gas, UK NBP and Russian Natural Gas.

The increase in gas prices will provide relief to Indian upstream producers as the earlier prices were not viable. CNG and piped cooking gas supplies in cities come from the gas produced by the Oil and Natural Gas Corporation.

The price hike will also lead to a rise in the cost of generating electricity, but the share of power produced from gas is marginal. The cost of producing fertilizer will also go up, but as the government subsidizes the crop nutrient, an increase in rates is unlikely.

The price of cooking gas was recently hiked by 50 rupees per cylinder and the new hike is expected to trigger fresh price rises. Gasoline and diesel prices have been raised nine times in the last 10 days, totaling 6.4 rupees per liter.

These fuel price hikes will have a domino effect on inflation. India’s annual retail inflation has already exceeded the Reserve Bank of India’s upper threshold limit of 6% for the second consecutive month in February.