(EnergyAsia, January 29 2013, Tuesday) — India’s consumers could face sharply higher energy costs this year as the Ministry of Petroleum and Natural Gas has agreed to let domestic natural gas prices rise to US$8.5 per million metric British thermal unit (mmBtu) from their current level of US$4.2.

As natural gas is used mostly for producing electricity, fertiliser and chemicals, a sharp price increase will filter through the rest of India’s economy with significant inflationary effect.

The ministry has signalled its support for the new price during upcoming talks over the renewal of five-year gas supply contracts from the country’s fast-depleting Krishna-Godavari (KG) basin. Producer Reliance Industries (RIL) has long been lobbying for consumers to pay higher prices beyond the benchmark US$4.2 mmBtu to reflect the increasing scarcity of supply from India’s main gas producing field.

India’s other main upstream oil and gas companies, ONGC, Petronet and Oil India Limited, are also demanding higher gas prices to help cover rising operating costs.

Producers argue that even at US$8.5 per mmBtu, Indian consumers will be paying only half the amount that users in Japan and South Korea are paying.