Government approves new gas pricing formula, to cap prices of piped cooking gas

The government approved a new gas pricing formula to cap prices of piped cooking gas, based on the recommendations of the Kirit Parikh committee on natural gas. "As per the decision taken by the Cabinet Committee on Economic Affairs (CCEA), natural gas produced from legacy or old fields, known as administered pricing mechanism (APM) gas, will now be indexed to the crude oil price, instead of pricing it based on gas prices in surplus nations such as the US, Canada, and Russia," Information and Broadcasting Minister Anurag Thakur told media persons after the cabinet meeting.

From April 1, APM gas will be priced at 10 percent of the monthly average of the Indian crude basket. The rate such arrived at however will be capped at $6.5 per million British thermal unit as against the current gas price of $8.57 per mmBtu. Rates will be decided every month instead of the current practice of bi-annual revision. Gas produced from new wells or well interventions in the nomination fields of the ONGC and the OIL, would be allowed a premium of 20 percent over the APM price.

This step will lead to a significant decrease in prices of piped natural gas (PNG) for households and compressed natural gas (CNG) for transport. 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, official sources said.

The government has targetted to increase the share of natural gas in primary energy mix in India from the current 6.5 percent to 15 percent by 2030. The reforms shall help expand the consumption of natural gas and will contribute to the achievement of the target of emission reduction and net zero, sources said. The reduced prices shall also lower the fertiliser subsidy burden and help the domestic power sector.

With the provision of a floor in gas prices as well as provision for 20 percent premium for new wells, this reform will incentivize the ONGC and the OIL to make additional long term investments in the upstream sector leading to greater production of natural gas and consequent reduction, official sources explained. The Kirit Parikh committee, which was set up by the government to review the pricing formula for gas produced in the country, had recommended complete liberalization of natural gas prices by January 1, 2027. The panel had submitted its report to the government in November 2022.