Biting the bullet, the government on Thursday approved near doubling of natural gas prices to USD 8.4 from 1st April next year, a move which will result in rise in power tariff, urea cost and CNG prices.

This will be the first revision in gas prices in 3 years. The Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Manmohan Singh approved Oil Ministry’s proposal to price all domestically produced natural gas as per a complex formula suggested by a panel headed by Prime Minister’s economic advisor C Rangarajan, sources said.

The new price will apply uniformly to all producers, be it state-owned firms like Oil and Natural Gas Corp (ONGC) or private sector Reliance Industries.

While it was previously said the new rates would apply to regulated or APM gas produced by firms like ONGC immediately, the pricing as per Rangarajan formula will come into effect from 1st April, 2014, just when RIL’s KGD6 formula of USD 4.2/mmBtu runs out.

The Rangarajan formula would be applicable for five years. The Rangarajan formula uses long-term and spot liquid gas (LNG) import contracts as well as international trading benchmarks to arrive at a competitive price for India.

While the Rangarajan panel had recommended revising domestic gas prices every month based, the Oil Ministry changed it to a quarterly revision.

Though the average of of the two currently comes to USD 6.775, the price of gas in April next year when these guidelines will come into effect would be around USD 8.42 and over USD 10 in the following year.

This is because Petronets deal with Qatar’s RasGas (India’s only functional long-term LNG contract) has a price-cap which lifts in January 2014, linking gas prices fully with crude.

While RIL’s KG-D6 gas price was fixed in 2007 at USD 4.205 per mmBtu for first five years of production, APM gas rates were last revised in June 2010 when prices were raised to USD 4.2 from USD 1.79. RIL began production from its eastern offshore KG-D6 field in April 2009.