A government appointed gas price review panel led by Kirit Parikh on November 30, submitted its report to the government.
Major recommendations
- It has recommended completely free and market-determined pricing for natural gas extracted from legacy fields (old fields) and remove all caps by January 1, 2027.
- Till then, a floor price of $4 per MMBtu (metric million British thermal unit) be kept in place to cover the cost of gas production by Oil India (OIL) and the Oil and Natural Gas Corporation (ONGC).
- There should be a ceiling price of $6.5 per mmBtu, which may be increased yearly by about $0.5 per mmBtu till 2027.
- There should not be any tinkering with the existing pricing formula for difficult fields such as KG-D6 of RIL and BP PLC. The Krishna Godaveri block D6 (KG-D6) fields of Reliance Industries Ltd and its joint venture partner bp plc are governed by the pricing formula for difficult fields.
- Natural gas should be included in the one nation one tax regime of GST by subsuming excise duty charged by the Centre and varying rates of VAT levied by State governments.
Present pricing mechanism
- Under the current mechanism, the government fixes the prices of gas produced from the old fields of state-run ONGC and OIL which is also called an Administered Pricing Mechanism (APM). Such fields account for about 80 per cent of annual gas output of about 91 billion cubic metres.
- Gas prices are reviewed every six months —1 April and 1 October —based on prices in gas surplus nations such as the US, Canada and Russia in a year with a lag of one quarter.
Benefits
- The moves would help ease the inflationary pressure on domestic users.
- Recommendations would help achieve the government’s target of raising the share of gas in India’s energy mix to 15 per cent by 2030 from around 6.4 per cent at present. Also, almost 50 per cent of natural gas used domestically is imported.
- Free pricing of domestic gas from difficult fields would attract sizeable investment from upstream companies which could lead to higher domestic gas production in the long run.
