The government reduced the prices of domestically produced gas by 12.5 percent for the October 2019-March 2020 period as against the price from the previous six months to $3.23 per million metric British thermal units (mmBtu).
This has been the first price cut since last October.
In a statement, the oil ministry's Petroleum Planning & Analysis Cell also set the ceiling price for gas produced from more challenging fields at $8.43 per mmBtu for the same period, lower by about 9.5 percent. The prices will be applicable on gross heat value basis.
Lower natural gas prices will reduce costs of gas for fertilizers, automobiles and households.
Shares of city distributors surged after oil ministry released the statement on the rate cut on Tuesday. Indraprastha Gas rose to an intraday high of Rs 359.20, Mahanagar Gas was also trading higher than its previous close in the morning session touching Rs 931.45 apiece on NSE, while Adani Gas jumped as much as 3 percent to Rs 136.40.
Meanwhile, the price cut will reduce the earnings margin for state-owned Oil and Natural Gas Corp Ltd (ONGC.NS) and Oil India Ltd (OILI.NS). ONGC was trading close to 1 percent lower at Rs 130.70 and Oil India was down by 0.17 percent to Rs 145.