Cabinet approves new mechanism to fix pricing for domestic natural gas

Gas produced from new wells or well interventions in the nomination fields of ONGC and OIL, would be allowed a premium of 20 percent over the Administered Price Mechanism (APM price).

The Cabinet Committee on Economic Affairs on April 6 approved a mechanism to fix pricing for domestic natural gas in India, said Union Minister Anurag Thakur in a press briefing.

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, said a Press Information Bureau (PIB) statement on April 6.

The new mechanism reflects the adoption of some of the key recommendations made by the Kirit Parikh Panel, set to decide the deregulation of gas prices in India.

Thakur said domestic gas pricing will now be linked to imported crude pricing and would be decided at 10 percent of the Indian crude basket and will be revised on a monthly basis. At present, gas prices are decided on a six-monthly basis and 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 with a time lag of a quarter.

The  Crude Oil Indian Basket as on April 5 was at $85.11/ barrel.

He added the formula will include a floor and ceiling for the gas pricing at $4 and $6.5, respectively. This ceiling, Thakur said, will be kept in force for the next two years.

The PIB statement said, gas produced from new wells or well interventions in the nomination fields of ONGC and OIL, would be allowed a premium of 20 percent over the  Administered Price Mechanism (APM price).

Domestic gas prices are currently at $8.57 per mmBtu as of April 1, with the adoption of the new pricing mechanism, gas prices are expected to see an immediate cut.

Industry analysts had earlier said the adoption of the Kirit Parikh Panel recommendations, if the benefit will be fully passed on, can bring down prices for CNG and PNG customers by 10 to 12 percent.