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New Delhi: Natural gas prices in India probably, from October 1, shifted below US Dollar 4.2 per unit, a rate that was used last year to devise a new pricing formula to incentivize domestic exploration.

Using prevailing price in gas surplus nations like the United State, Russia and Canada, the government had in October last year announced a new pricing formula that led to rates rising by about 33 percent to US Dollar 5.61 per million British thermal unit for a period up to March 31, 2015 from the long-standing price of US Dollar 4.2.

The rates, on net calorific value (NCV) basis, dropped to US Dollar 5.05/per million British thermal unit for six month period starting April 1, 2015.

"Preliminary calculations based on average price in the gas hubs stated in the formula indicate that the rate from October 1 is likely to be US Dollar 4.16 or US Dollar 4.17/per million British thermal unit on net cost value basis," an Oil Ministry official said.

On gross calorific value (GCV) basis, the rate will be about US Dollar 3.8/million British thermal unit as compared to US Dollar 4.66 currently.

"These are basic counts and final numbers may vary by a few cents but the general trend is that prices will fall," he said.

The October 1 price cut will be the second reduction in rates ever - the first being on April 1.

While the cut will impact the revenue of producers like Oil and Natural Gas Corp (ONGC) and Reliance Industries, it will bring gains for users in the power and fertilizer sector in the form of lower feedstock cost.

As per the mechanism approved in October 2014, price of nationally produced natural gas is to be revised every six months using weighted average or rates prevalent in gas-surplus economies of US/Mexico, Canada and Russia to incentivize exploration in deep-sea that wasn't viable at US Dollar 4.2 rate.

Indian gas cost is calculated by taking weighted average price at Henry Hub of US, National Balancing Point of UK, rates in Alberta (Canada) and Russia with a lag of one quarter.

So, the rates for April 1 to September 30 interval were based on average price at the international hubs during January to December 2014.

The October 1, 2015 to March 31, 2016 cost will be based on average of prices during July 1, 2014 to June 30, 2015.

The current price of US Dollar 5.61/million British thermal unit is already among the lowest in Asia Pacific. China pays explorers US Dollar 11.9/million British thermal unit rate for new projects while Indonesia and the Philippines price the fuel at US Dollar 11 and US Dollar 10.5, respectively.

Gas from offshore fields in Myanmar, where Indian firms ONGC and GAIL have stake, are sold to China for US Dollar 7.72.

Thailand prices gas from new projects at US Dollar 8.2/million British thermal unit.

The only nations with lower rates than prevailing price are Vietnam (US Dollar 5.2) and Malaysia (US Dollar 5).