New Delhi: The Union Cabinet on Thursday approved amendments to the natural gas pricing formula and imposition of a cap or ceiling price to help bring down the prices of CNG and piped cooking gas by up to 10 per cent.
Natural gas produced from legacy or old fields, known as APM gas, will now be indexed to the price of imported crude instead of being benchmarked to gas prices in four surplus countries such as the US, Canada and Russia. Union Information and Broadcasting Minister Anurag Thakur told reporters after the cabinet meeting.
The price of APM gas will be 10 per cent of the price of the crude oil basket (Indian basket of crude oil) imported by India. However, such a rate would be capped at US$6.5 per million British thermal units. There will also be a floor or base price of US$ 4 per mmBtu.
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.
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, called PNG, and CNG rates have gone up by up to 80 per cent in a year till August 2022. This follows a rise in international energy prices.
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.
The price of the Indian basket of crude is currently US$85 a barrel and 10 per cent of that translates into a price of US$8.5, but the cap would mean that APM gas production, ONGC and Oil India Ltd would cost only US$6.5. per MMBTU.
The minister said these cap and floor prices would be for two years and would be increased every year thereafter by $0.25 per mmBtu.
The changes in the gas pricing formula are based on the recommendations of a committee under Kirit Parikh.
While the committee’s recommendation for indexation along with the minimum and maximum limits has been accepted, the annual increment and full regulation 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 taken by the cabinet have been conveyed.
Also, the rates will be fixed every month instead of the current practice of fixing them bi-annually.
Currently, the government fixes bi-annually the prices of locally produced natural gas – which is converted into CNG for use in automobiles, piped into household kitchens for cooking and used to generate electricity and fuel. Used to make fertilizers.
National oil companies such as Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) have two separate formulas to pay for gas produced from legacy or old fields, and for new fields lying in difficult areas such as the deep sea. For.
The global jump in energy prices following Russia’s invasion of Ukraine has pushed rates for locally produced gas to record highs – US$8.57 per million British thermal units for gas from legacy or old fields and hard-to-reach six fields. US$ 12.46 per mmBtu for gas from the fields. The period of the month is expiring on 31st March.
On revision of April 1, the price of APM gas was put on hold pending cabinet approval for a change in the pricing formula. Had the old formula continued, the price of gas from old fields would have gone up to $10.7 per mmBtu.
The price of gas coming out of difficult fields was reduced to $ 12.11 per mmBtu.
The government last year constituted a committee under Kirit Parikh to look into the revision of gas prices, balancing both local consumer and producer interest, while at the same time furthering the cause of the country becoming a gas-based economy. Is.
Keeping the formula for difficult fields unchanged, the panel suggested price bands for current production from legacy or old fields, which account for two-thirds of all gas produced in the country and are currently under the administered price mechanism, or APM . Until full price controls are implemented in 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 covers producers’ cost of production, while protecting consumers, especially CNG users, households using piped cooking gas and fertilizer plants, who were grappling with rising input costs.
APM Gas supplies most of the CNG and LPG.
India aspires to become a gas-based economy with the share of natural gas in its primary energy mix aimed at increasing to 15 per cent by 2030 from the current level of around 6.3 per cent.
The APM gas fields were allocated to ONGC and OIL prior to 1999. Production from these fields does not attract profit-sharing with the government, and their pricing formula is benchmarked to gas prices at international gas stations in surplus countries every six months based on a weighted average. worth. The prices were last revised on October 1 and are now due for revision on April 1.
To incentivize additional production from a new well or well intervention in nomination blocks, the Kirit Parikh committee recommended a premium of 20 per cent over and above APM prices for ONGC and OIL till full independence. He said that the cabinet has approved it.
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.