The Union Cabinet approved a new formula to determine the price of natural gas, and put a cap or ceiling price on CNG and piped cooking gas to reduce prices by up to 10 percent.
Announcing the changes, Union Information and Broadcasting Minister Anurag Thakur said at a cabinet briefing, Natural gas produced from conventional or old fields, known as APM gas, will now be the benchmark for gas prices in four surplus instead of being indexed to the price of imported crude oil. Countries like America, Canada and Russia.
The price of APM gas will be 10 per cent of the price of the Indian basket of crude oil imported by India. However, the rate will be limited to a maximum of US$6.5 per million British thermal units, and a minimum or base price of US$4 per mmBtu.
Thakur said the ceiling price is lower than the current rate of $8.57 per mmBtu and will bring down the prices of piped cooking gas as well as CNG sold to automobiles.
He said piped cooking gas prices would be cut by up to 10 per cent in cities, while CNG would see a smaller reduction.
Piped Cooking Gas (PNG) and Compressed Natural Gas (CNG) prices to increase by 80% from August 2021 to August 2022 due to increase in international energy prices.
CNG price in Delhi, Mumbai
After this decision, the price of CNG in Delhi will come down from Rs 79.56 per kg to Rs 73.59 and that of PNG from Rs 53.59 per thousand cubic meters to Rs 47.59. In Mumbai, CNG will cost Rs 79 instead of Rs 87 and PNG will cost Rs 49 per kg instead of Rs 54.
Currently, the Indian basket of crude oil is priced at USD 85 per barrel, which means that 10% of this would be equivalent to a price of USD 8.5. However, due to the cap imposed, APM gas producers like ONGC and Oil India Limited will get only US$6.5 per mmBtu.
The minister further said that these ceiling and base prices would be effective for a period of two years and thereafter the rates would be increased annually by $0.25 per mmBtu.
The revision of natural gas pricing formula is as per the suggestions made by a committee headed by Kirit Parikh. Though the committee’s proposal for base price, ceiling price and indexation has been approved, the suggestions regarding annual wage hike and full deregulation have been changed.
The panel had suggested a 50 cents per mmBtu increase in the range of USD 6.50 per year to gradually move towards marketing and pricing freedom for APM fields.
When asked about the deregulation, Oil Secretary Pankaj Jain said that the decisions of the cabinet were made on the basis of informed decisions.
Monthly rates
Additionally, the pricing rates will now be determined monthly instead of the current practice of bi-annual adjustments.
Currently, the government sets the prices of domestically produced natural gas twice a year. This gas is then used to produce CNG for automobiles, piped to homes for cooking, and used for power generation and fertilizer production.
The pricing rates for natural gas produced from legacy or old fields of national oil companies such as Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) are determined by two different formulas, based on new oilfields located in challenging positions. are used for regions. – Access locations such as deep sea areas.
The impact of the Ukraine conflict on oil prices
The recent surge in global energy prices following Russia’s invasion of Ukraine has pushed domestically produced natural gas prices to record highs. As of March 31, gas rates from legacy or old fields stood at US$8.57 per million British thermal units, while gas from difficult-to-access fields cost US$12.46 per mmBtu during the six-month period ended March 31. .
During the April 1 revision, pricing of APM gas was put on hold till the cabinet gave its approval for the new pricing formula. Had the old formula been used, the price of gas from the Legacy field would have risen to $10.7 per mmBtu.
The price of gas coming out of difficult fields was reduced to $ 12.11 per mmBtu.
Recommendations of the Kirit Parikh Committee
In an effort to promote India’s transition to a gas-based economy while considering the interests of local consumers and producers, the government last year constituted a committee headed by Kirit Parikh to review the revision of gas prices.
The committee recommended keeping the formula for determining gas prices from difficult areas unchanged. However, it suggested introducing a price band for existing production of gas from legacy or old fields, which account for two-thirds of the country’s total gas production and are currently under the Administered Price Mechanism (APM) until Prices do not become completely free of control. 2027.
The panel suggested a 50 cents per mmBtu increase in the range of USD 6.50 per year to gradually move towards marketing and pricing freedom for APM fields.
Thakur said the ceiling price takes into account the cost of production of gas producers, as well as provide protection to consumers using CNG, piped cooking gas and fertilizer plants, which are battling high input costs.
APM Gas supplies most of the CNG and LPG.
India aims to become a gas based economy
India aims to increase the share of natural gas in its primary energy mix from the current 6.3 per cent to 15 per cent by 2030, as it aims to become a gas-based economy.
The APM gas fields, which were allocated to ONGC and OIL before 1999, do not involve profit-sharing with the government. The pricing formula for gas produced from these fields is based on the weighted average price of gas at international gas stations in surplus countries and is revised every six months. The last revision was done on 1 October, and the next revision is due on 1 April.
The Kirit Parikh Committee recommended a 20% premium on APM prices for ONGC and OIL to incentivize additional production by drilling new wells or well intervention in nomination blocks till full independence. According to Thakur, the cabinet has approved this recommendation.
In 2021-22, 34 per cent of the APM gas has been allocated to the power sector, 17 per cent to the fertilizer industry, which affects food prices, and 22 per cent to the city gas sector.
The committee also recommended that gas should be brought under the Goods and Services Tax, or GST, regime. A common taxation like GST for gas instead of state level VAT, which varies from 3 per cent to 24 per cent, will help the market grow.
(With inputs from PTI)
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