Net cost reduction for IGL to be 18%: Experts welcome Kirit Parikh panel suggestions for gas prices

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A day after the Kirit Parikh committee recommended complete liberalisation of natural gas prices by January 1, 2027, oil analysts and experts have shown confidence and said that if the recommendations are approved, if will be a welcome move for the oil and gas sector.

''If the Kirit Parikh panel recommendations are approved and implemented, the net cost reduction for IGL will be 18 per cent,'' said Pawan Kumar, Director-Commercial, Indraprastha Gas Limited (IGL) in an interview with CNBC-TV18.

The government-appointed panel, which submitted its report on Wednesday, November 30, has recommended a floor price and a cap for gas from legacy and old fields. For gas produced from difficult fields - which reap more benefits in pricing, though with an upper limit, the committee has recommended that the policy should be left unchanged for the next three years.

Also Read: MC Explains: Kirit Parikh committee recommended full deregulation of gas prices from January 2027. Here’s all you need to know

Floor of $4 for legacy gas field; ceiling price at $6.50/mmBtu

According to Probal Sen, Energy Analyst, ICICI Securities, the immediate reduction in cost is welcome, but the pathway to free pricing and that there's a fixed escalation put in the cap does two things.

''First, it provides a stability to the pricing regime, which was missing from both consumers and city gas distribution (CGD) companies perspective for the last year-and-a-half, given the volatility in the weightages.

Secondly, the fact that there's a clear visibility in what the absolute maximum pricing could be a very significant move, especially for the costs and margins for CGD companies,'' Sen told CNBC-TV18.

The Kirit Parikh panel recommended a floor of $4 for legacy gas fields and suggested that a cap of $6.50/mmBtu be put on gas prices sold by ONGC and Oil India.

The ceiling price recommended in the report submitted to the Oil Ministry is $6.50/mmBtu and it will be gradually raised by $0.50/mmBtu every year, Kirit Parikh told CNBC-TV18 in an exclusive interview.

''The minimum floor of $4 is useful from ONGC and Oil India perspective as the companies have said in their earnings call that their cost of production for legacy fields is somewhere around $3-$3.5, so atleast the cost of production won't be breached, which is a comfort factor for upstream companies as well,'' said Probal Sen.

Also Read: Domestic gas producers must have complete pricing freedom, recommends govt-appointed panel

APM gas price expected to come down to $8.50/mmBtu

The government-appointed panel noted that while the administered pricing mechanism (APM) gas pricing is still determined by the government on the basis of a formula, domestic producers must have complete pricing freedom, which is the only way to increase the local production. Kirit Parikh added that APM gas price is expected to come down from $8.50/mmBtu.

''For IGL, around 88-89 per cent of gas sourced is via domestic sources and the remaining 12-13 per cent is bought from spot markets,'' IGL's Pawan Kumar told CNBC-TV18. ''If the recommendations are approved, it will reduce costs to $7.98 mm/Btu for IGL,'' he added.

The committee seeks to provide adequate returns to CGD companies and the difficult gas fields should see liberalisation by January 1, 2026, according to Parikh.