The Cabinet Committee on Economic Affairs (CCEA) on Thursday decided that the price of natural gas from legacy fields, which account for 70% of domestic output, will be fixed at 10% of the monthly average of Indian crude basket, subject to a price band of $4-6.50/unit, for the next two years.
The CCEA decision will lead to a reduction in the price for legacy gas from the record level of $8.57 prevailed since September 2022, when the price was linked to select international gas hubs, subject to six-monthly revisions.
Under the new policy, gas produced from new wells or well interventions in the nomination fields of state-run ONGC and OIL would be allowed a premium of 20% over the administered price to incentivise production. After two years, the price band will increase by $0.25 a year.
While the decision is based on the report of the Kirit Parikh committee, the CCEA refrained from taking a call on complete de-regulation of gas pricing, starting from January 1, 2027, as recommended by the panel.
Also, there won’t be any change for now for the gas produced from “new and difficult fields” owned by Reliance-bp and ONGC, such as their offshore assets in KG basin off the Andhra coast. Gas from these fields is currently being sold at a record $12.46 per million British thermal unit (mBtu)
Detailed guidelines on pricing and premium will be issued by the ministry of petroleum and natural gas on Friday, information and broadcasting minister Anurag Thakur said, adding that the new price will be effective from Saturday.
Indian basket of crude ruled at $85.11/barrel on Wednesday, which would have required a price of $8.51 for domestic legacy gas under the new policy. However, the price band would mean the price is capped at $6.5/mBtu.
The new pricing policy will be applicable to 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 price will be revised on a monthly basis, in sync with the Indian basket of crude.
The CCEA decision, which brings about radical change in the way domestic gas prices are determined, would help improve the margins of city gas companies and reduce the cost of gas-based power producers and fertiliser units, besides cutting the government’s fertiliser subsidy burden. Price of piped natural gas will come down by 10% and that of CNG by 7-9%, Thakur said.
Share prices of city gas distribution firms rose on Thursday. The Adani Total Gas stock rose 5% to close at `864.35, followed by Indraprastha Gas (up 4.34%), Mahanagar Gas (2.55%) and GAIL (0.09%).
“For the gas produced by ONGC & OIL from their nomination blocks, the administered price mechanism (APM) price shall be subject to a floor and a ceiling. Gas produced from new wells or well interventions in the nomination fields of ONGC & OIL would be allowed a premium of 20% over the APM price,” the government said in a statement.
The new guidelines are intended to ensure a stable pricing regime for domestic gas consumers while at the same time providing adequate protection to producers from adverse market fluctuation with incentives for enhancing production, it added.
The 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, Thakur said, would help expand the consumption of natural gas and will contribute to achievement of target of emission reduction and net zero.
Currently, the domestic gas prices are determined as per the new Domestic Gas Pricing Guidelines, 2014, which were approved by the 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.