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The Centre on Thursday amended the domestic pricing model of natural gas by imposing a price cap on it. This price cap would help reduce the prices of piped natural gas (PNG), supplied to households, and compressed natural gas (CNG), used as auto fuel and by various industries, by up to 10 per cent.
In previous months, prices of natural gas had increased by 80 per cent owing to a spike in international markets. With this cap, recommended by the Kirit Parikh committee, domestic natural gas prices will now be announced monthly. They will be pegged at 10 per cent of the international price of the Indian crude basket.
Addressing a press conference after the Union Cabinet's decision on the price cap, the minister for information and broadcasting, Anurag Thakur, said that the gas price will now be linked to imported crude instead of the international hub gas price.
"Price of domestic gas will be 10 per cent of the international price of Indian crude basket, and will be notified monthly," he added.
With these changes, the data of Indian crude basket price from the previous month would form the basis for APM gas price determination.
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What's new?
Before the price cap, natural gas was priced based on the benchmark rates of the APM (Administered Price Mechanism) gas, the natural gas produced from legacy or oil fields. Gas prices in surplus nations like Russia, the US, and Canada determined these benchmark rates.
With the amendment of the domestic pricing model of natural gas, the APM prices will be indexed to the price of imported crude oil.
The price of APM will be 10 per cent of the monthly average of the Indian crude basket and will be notified on a monthly basis.
According to this new amendment, the APM price will have a cap of $6.5 per million British thermal units (MMBtu) and a floor price of $4 per MMBtu.
The Indian basket of crude oil is priced at $85 per barrel. With this price cap, the prices will be cut from $8.5 (10% of crude oil) to $6.5, thereby reducing the overall prices of domestic natural gas.
These price caps and floor prices would remain the same for the next two years and would only be increased by $0.25 per MMBtu annually.
Meanwhile, the government has decided not to tinker with the pricing formula for difficult fields such as KG-D6 of Reliance Industries and BP PLC.
Expected reductions in prices:
A considerable price reduction is expected through the new pricing method, which will be enforced from April 8.
Post-enforcement of the new indexation method, the prices of CNG in Delhi are likely to be reduced from Rs 79.56 per kg to Rs 73.59. While in Mumbai, the CNG is expected to plunge to cost Rs 79 per kg from Rs 87.
The PNG price in Delhi is expected to be cut from Rs 53.59 per thousand cubic meters to Rs 47.59. At the same time, Mumbai might have to pay Rs 49 per thousand cubic meters instead of Rs 54.
The motive for changes:
The new guidelines are intended to ensure a stable pricing regime for domestic gas consumers while providing adequate protection to producers from adverse market fluctuation with incentives for enhancing production.
Centre has targeted to increase the share of natural gas in the primary energy mix in India from the current 6.5 per cent to 15 per cent by 2030. The reform is expected to help expand the consumption of natural gas and contribute to the achievement of the target of emission reduction and net zero.
The new regime is aimed at expanding the domestic production of natural gas and encouraging technological innovation, Anurag Thakur said.
India currently imports 50 per cent of its natural gas requirements.
