The Kirit Parikh recommendations on gas pricing, if implemented from April 1, can bring immediate relief to consumers of piped natural gas (PNG) and compressed natural gas (CNG) in the form of a 10-12 percent price cut, experts said.
“Assuming this (the cut in domestic gas prices) gets passed on fully to CNG and PNG consumers, it would mean a price decline of 10-12 percent from the current levels,” said Manish Gupta, senior director for CRISIL Ratings.
Another analyst said a reduction of Rs 5 to 10 per kg of gas could be expected if the recommendations go through.
The price of CNG, used as an automobile fuel, in New Delhi is Rs 79.56 per kg, while the price of domestic PNG used for cooking is Rs 53.59 per standard cubic meter (SCM).
The committee recommended that natural gas produced from old fields should be priced at 10 percent of the monthly average of the Indian crude basket. There should be a floor price of $4 per million British thermal units (mmBtu) and a cap of $6.5 per mmBtu, it said.
“If the Kirit Parikh panel recommendations are implemented, there will be some reduction in the input gas cost, there will be a reduction of $1.5 per mmBtu,” Pawan Kumar, director-commercial at Indraprastha Gas, said in an interview with CNBC-TV18 on March 23.
Immediate relief
Domestic gas prices are currently at $8.57 per mmBtu. Brent crude traded at $78.12 per barrel on March 27.
“Given where crude is and considering the ceiling, for all purposes, the panel recommendations should bring immediate relief for all consumers, including sectors like fertilisers, if implemented,” said Probal Sen, an analyst with ICICI Securities.
Varatharajan Sivasankaran, senior vice president with Antique Stock Broking, said he expects the government will insist that the reduction in gas prices is passed on to customers.
“In case the recommendations are fully accepted without any changes, one can expect an immediate cut in prices of CNG and PNG. I expect the government will insist that they are immediately passed on,” he said. “While city gas distributors will pass on most of the price cut, it may also help boost their margins.”
The panel also said the ceiling price should be increased by 50 cents every year until 2027, when domestic gas prices are expected to be fully deregulated. Though consumers can expect immediate relief, whether deregulation after 2027 will reduce domestic gas prices is uncertain.
“The timeline to decontrol the gas pricing mechanism was set with an expectation that the current volatility seen in global gas prices amid the ongoing geopolitical situation would ease by then,” said Gupta of CRISIL. Ultimately, pricing, if decontrolled, would depend on factors such as gas production, consumption, and the price of competing fuels.
Sen of ICICI Securities said geopolitical factors such as Russia and the ongoing war’s impact would decide the course of pricing beyond 2027.
“Where crude oil prices trade at that point, how the government benchmarks the direct linkage to crude oil prices in the pricing mechanism, etc are other factors,” he said.
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