Raise in Natural Gas Price to $5.61 per mm Btu

1. Government  approved raising natural gas price to US $5.61 per mmBtu from November 1 but Reliance Industries will continue to get current US $4.2 rate till it makes up for shortfall in output  KG-D6 block.

2. The cabinet modified the Rangarajan formula approved by previous UPA government to bring down the increase in rates from US $8.4 to US $5.61. 

3. Rates will be revised every six months with the next revision being on April 1.

4. For RIL's flagging D1&D3 gas fields in KG-D6 block where output should have been 80 mmscmd but is languishing at less than 8 mmscmd, the Cabinet decided the current rates will continue to apply.

5. Consumers will, however, pay the revised increased price but RIL will get only USD 4.2 with the difference being deposited in an escrow account. RIL will get the higher rates if it is legally able to prove that it did not deliberately cut production and output fall was a result of geological reasons as it claims.

Consequences:1. Higher gas prices would increase the,  a. expense of running power stations and fertilizer plants, b. thus, raising infrastructure and food costs and accelerating the rate of inflation. c. Every dollar increase in gas price will lead to a Rs 1,370 per tonne rise in urea production cost and a 45 paise per unit increase in electricity tariff (for just the 7% of the nation's power generation capacity based on gas).d. there would be a minimum Rs 2.81 per kg increase in CNG price e.  there would be a minimum Rs 1.89 per standard cubic metre hike in piped cooking gas. 

NOTE: 1. The British thermal unit (BTU or Btu) is a traditional unit of energy equal to about 1055 joules. It is the amount of energy needed to cool or heat one pound of water by one degree Fahrenheit. In science, the joule, the SI unit of energy, has largely replaced the BTU.

2. Escrow Account: A financial instrument held by a third party on behalf of the other two parties in a transaction. The funds are held by the escrow service until it receives the appropriate written or oral instructions or until obligations have been fulfilled. Securities, funds and other assets can be held in escrow.