Cabinet approves revised domestic gas pricing guidelines
The Cabinet Committee on Economic Affairs, chaired by the Prime Minister
Narendra Modi, has approved the revised domestic natural gas pricing guidelines
for gas produced from 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 of such natural
gas shall be 10% of the monthly average of Indian Crude Basket and shall be
notified on a monthly basis. 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. A detailed notification is being separately
issued.
The new guidelines are intended to ensure 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.
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 shall help
expand the consumption of natural gas and will contribute to achievement of
target of emission reduction and net zero.
These reforms are a continuation of the various initiatives taken by
Government of India to protect the interests of consumers by reducing the
impact of increase in international gas prices on gas prices in India by
significantly increasing the domestic gas allocation to City Gas Distribution
sector.
The reforms will lead to significant decrease in prices of Piped Natural
Gas (PNG) for households and Compressed Natural Gas (CNG) for transport. The
reduced prices shall also lower the fertilizer subsidy burden and help the
domestic power sector. With the provision of a floor in gas prices as well as
provision for 20% premium for new wells, this reform will incentivize ONGC and
OIL to make additional long term investments in the upstream sector leading to
greater production of natural gas and consequent reduction in import dependence
of fossil fuels. The revised pricing guidelines will also promote lower carbon
footprint through the growth of gas-based economy.
Currently, the domestic gas prices are determined as per the new
Domestic Gas Pricing Guidelines, 2014 which were approved by 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.
As the earlier guidelines based on 4 gas hubs had a significant time lag
and very high volatility, the need for this rationalization and reform was
felt. The revised guidelines make prices linked to crude, which is a practice
now followed in most industry contracts, is more relevant to our consumption
basket and has deeper liquidity in global trading markets, on a real time
basis. With the changes now approved, data of Indian Crude basket price from
the previous month would form the basis for APM gas price determination.