The slump in global gas prices is likely to result in the domestic natural gas price dropping more than 20 per cent from April 1, which is expected to boost demand and increase consumption, including of city gas.

The prices are expected to fall to about $2.5 per million British thermal unit (mBtu) for a period of six month from $3.23, sources said, the second reduction in six months that takes the rates to the lowest in two-and-half-years.

The price of gas from difficult fields is also likely to be cut to $5.50 per mBtu from $8.43 per mBtu.

Analysts said data indicated the gas price at US benchmark Henry Hub has fallen below $2 per mBtu, the lowest since 2016.

In Europe, the benchmark contract for the Dutch gas hub dropped below $3 per mBtu to its lowest in more than a decade.

Natural gas prices are set every six months — in April 1 and October — based on average rates in gas-surplus nations such as the US, Russia and Canada.

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

The reduction in natural gas prices would mean lower raw material cost for compressed natural gas (CNG) and natural gas piped to households (PNG) and should translate into a reduction in retail prices. It would also mean lower feedstock cost for power generation and the manufacturing of fertilisers.

However, this could impact the revenue of state-owned PSUs such as ONGC and Oil India, which produce 83 per cent of the domestic gas. Other producers such as Reliance Industries, Vedanta and Hindustan Oil Exploration Company would also see their revenue go down.

ONGC’s revenue and earnings from the gas business will fall around Rs 3,000 crore because of the price cut, according to some estimates.

The government is keen to push the green fuel through the expansion of gas pipelines. It also plans to unbundle state-owned GAIL India’s pipeline business into a separate entity to increase competition.

The government had recently approved viability gap funding for a gas grid in the northeast which will be implemented by a consortium comprising GAIL and other state-owned firms.