The Cabinet Committee on Economic Affairs, chaired by the Prime Minister, has approved the revised domestic natural gas pricing guidelines for gas produced from nomination fields of ONGC/OIL, New Exploration Licensing Policy (NELP) blocks and pre-NELP blocks, where Production Sharing Contract (PSC) provides for Government’s approval of prices.
- The government’s aim is to transition to a gas-based economy.
- Government has targeted to increase the share of natural gas in primary energy mix in India from current 6.5% to 15% by 2030. The reforms shall help expand the consumption of natural gas and will contribute to achievement of target of emission reduction and net zero.
Key changes
- The price of such natural gas shall be 10% of the monthly average of to global crude prices as reflected by the Indian crude oil basket.
- The floor price has been set at $4/mmBtu (Metric Million British Thermal Unit), and the ceiling has been fixed at $6.50/mmBtu.
- Indian Crude Basket and shall be notified on a monthly basis.
- The new prices will be effective from April 8.
- These gas pricing norms will continue for two years, instead of six months as per the current practice.
- Earlier, the prices of natural gas produced from legacy or old fields, also known as APM gas was priced based on the benchmark rates of gas in surplus nations like the US, Canada, and Russia. Now, the APM prices to the price of imported crude oil. APM will be priced at 10% of the price of a basket of crude oil that India imports.
- The rate is, however, capped at $6.5 per million British thermal units, with a floor price of $4 per mmBtu.
- Currently, the Indian basket of crude oil is priced at $85 per barrel, so the ceiling is helping to cut the prices from $8.5 (10% of crude oil) to $6.5 and this will lead to an overall reduction in prices of domestic PNG and CNG.
- These caps and floor prices will remain the same for two years and will increase by $0.25 per mmBtu per year thereafter.
- With this announcement, consumers can expect a drop in the prices of CNG and PNG in the coming days.
- This decision will also bring relief to industries dependent on natural gas as it will reduce their input costs.
- Last year, the government set up a committee headed by Kirit Parikh to examine gas prices and determine a pricing formula that takes into account the interests of both local consumers and producers.
- Currently, the domestic gas prices are determined as per the new Domestic Gas Pricing Guidelines, 2014 which were approved by Government in 2014. The 2014 pricing guidelines provided for declaration for domestic gas prices for a 6 month period based on the volume weighted prices prevailing at four gas trading hubs – Henry Hub, Albena, National Balancing Point (UK), and Russia for a period of 12 months and a time lag of a quarter.
