Govt ties local gas price to global crude benchmarks | Mint - Mint

NEW DELHI : The cabinet committee on economic affairs (CCEA) on Thursday approved new gas pricing guidelines, paving the way for linking domestic natural gas prices in India to global crude prices.

Under the approved guidelines, the price of natural gas will be 10% of the monthly average of the Indian crude basket, a weighted average of Dubai and Oman (sour) and Brent Crude (sweet) oil prices.

The Cabinet also approved a floor price of $4 per metric million British thermal unit (mmBtu) and a ceiling of $6.50 per mmBtu under the Administered Price Mechanism (APM) gas pricing.

Addressing reporters after the cabinet meeting, Union minister for information and broadcasting Anurag Thakur said the move would bring down the prices of piped natural gas and compressed natural gas.The new guidelines will apply to nomination fields of state-run energy companies Oil and Natural Gas Corp. (ONGC) and Oil India Ltd, New Exploration Licensing Policy (NELP) blocks and pre-NELP blocks, where the production sharing contract (PSC) provides for the government’s approval of prices.

The gas produced from the nomination blocks of ONGC and Oil India will be subject to a floor and ceiling administered price, according to new gas pricing guidelines.

Meanwhile, gas from new wells or well interventions in their nomination fields would receive a premium of 20% over the administered price. In a statement, the oil ministry said the move is aimed at expanding the consumption of natural gas and achieving the government’s target to increase the share of natural gas in the primary energy mix in India from the current 6.5% to 15% by 2030. The statement said the move is aimed at reducing the impact of the increase in international gas prices on gas prices in India. International gas prices have stayed elevated over the past year amid the Russia-Ukraine war.

Currently, domestic gas prices are determined based on the domestic gas pricing guidelines approved by the government in 2014. The 2014 pricing guidelines provided for the setting of domestic gas prices for a six-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.

The revised gas pricing guidelines approved by the Cabinet link domestic natural gas prices to global crude prices, which is a more relevant and real-time approach. The earlier guidelines based on four gas hubs had significant volatility. Data on Indian crude basket prices from the previous month will determine the APM gas price determination.

On 10 March, Mint reported that India would transition to a new domestic gas pricing regime based on crude oil prices in April.

In November, the Kirit Parikh committee made several recommendations to the petroleum ministry, including pricing locally produced natural gas at 10% of crude oil prices and implementing a floor price of $4 per mmBtu and a ceiling price of $6.5 per mmBtu.

Under the existing policy, India reviewed gas prices every six months, based on rates in surplus gas nations with a one-quarter lag. As of 1 October, the price of gas from old fields, which make up nearly two-thirds of India’s production, rose to $8.57/mmBtu, marking the third increase since April 2019. It was extended beyond 31 March.“According to the existing formula, the price of domestic gas would otherwise have been at $10/mmBtu for FY24. The revision in the pricing mechanism is likely to result in a lower realization of at least $3.50/mmBtu for domestic gas production from legacy fields,“ according to a CareEdge report.

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