Govt revises gas pricing formula; CNG, piped cooking gas to cost 10 per cent less

The Union Cabinet on Thursday approved a revision in the formula for pricing of natural gas and imposed cap or ceiling price to help cut CNG and piped cooking gas prices by up to 10 per centNatural gas produced from legacy or old fields known as APM gas will now be indexed to the price of imported crude oil instead of benchmarking it to gas prices in four surplus nations such as the US Canada and Russia Union IampB Miniser Anurag Thakur told reporters after a meeting of the CabinetAPM gas will be priced at 10 per cent of the price of basket of crude oil that India imports Indian basket of crude oil The rate such arrived at however will be capped at USD 65 per million British thermal unit There will also be a floor or base price of USD 4 per mmBtuThe ceiling price is lower than the current rate of USD 857 per mmBtu and would translate into a reduction in prices of piped cooking gas as well as CNG sold to automobiles he saidPiped cooking gas prices will be cut by up to 10 per cent across cities while CNG will see a little lower reduction he saidAlso Read Just a pause says RBI realtors heave sigh of reliefRates of piped cooking gas called PNG and CNG have jumped 80 per cent in one year to August 2022 This follows a spurt in international energy pricesFollowing the decision the CNG price in Delhi will be cut from Rs 7956 per kg to Rs 7359 and that of PNG from Rs 5359 per thousand cubic meters to Rs 4759 In Mumbai CNG will cost Rs 79 per kg instead of Rs 87 and PNG will cost Rs 49 per scm instead of Rs 54The Indian basket of crude oil is currently priced at USD 85 per barrel and 10 per cent of that translates into a price of USD 85 but the cap would mean the APM gas produces ONGC and Oil India Ltd would get only USD 65 per mmBtuThese caps and floor prices will be for two years and rates will increase by USD 025 per mmBtu per year thereafter the minister saidThe changes in the gas pricing formula are based on the recommendations of a committee under Kirit ParikhWhile the committees recommendation for floor and ceiling as well as indexation has been accepted the one on annual increment and full deregulation has been changedThe panel had suggested a 50 cents per mmBtu increase in the USD 650 ceiling every year to slowly move toward the marketing and pricing freedom for APM fieldsAsked about the deregulation Oil Secretary Pankaj Jain said the decisions taken by the cabinet have been informedAlso rates will be fixed every month instead of the current practice of fixing them biannuallyCurrently the government biannually fixes prices of locally produced natural gas which is converted into CNG for use in automobiles piped to household kitchens for cooking and used to generate electricity and make fertilisersTwo different formulas govern rates paid for gas produced from legacy or old fields of national oil companies like Oil and Natural Gas Corporation ONGC and Oil India Ltd OIL and that for newer fields lying in difficult to tap areas such as deepseaThe global spurt in energy prices post Russias invasion of Ukraine has led to rates of locally produced gas climbing to record levels USD 857 per million British thermal unit for gas from legacy or old fields and USD 1246 per mmBtu for gas from difficult fields in six month period ending March 31At the April 1 revision the APM gas price was kept on hold pending Cabinet approval for the change in the pricing formula Had the old formula continued prices of gas from legacy fields would have climbed to USD 107 per mmBtuThe price of gas from difficult fields was cut to USD 1211 per mmBtuThe government had last year constituted a committee under Kirit Parikh to look at a revision in gas prices that balances both local consumer and producer interest while at the same time advancing the countrys cause of becoming a gasbased economyWhile leaving the formula for difficult fields unchanged the panel suggested the price band for current production from legacy or old fields which make up for twothirds of all gas produced in the country and is currently under the administered price mechanism or APM until a full deregulation of prices is implemented in 2027The panel suggested a 50 cents per mmBtu increase in the USD 650 ceiling every year to slowly move toward the marketing and pricing freedom for APM fieldsThakur said the ceiling price covers for the cost of production of producers while protecting consumers particularly CNG users kitchens using piped cooking gas and fertilizer plants who had grappled with soaring input costAPM gas makes up for most of CNG and kitchen gas suppliesIndia aspires to become a gasbased economy with the share of natural gas in its primary energy mix targeted to rise to 15 per cent by 2030 from the existing level of around 63 per centAPM gas fields were allotted to ONGC and OIL before 1999 Production from these fields do not attract profitsharing with the government and their pricing formula is benchmarked to gas prices at international gas hubs in surplus nations every six months based on the weighted average price Prices were last revised on October 1 and are now due for revision on April 1To incentivize additional production from a new well or well intervention in the nomination blocks the Kirit Parikh committee recommended a premium of 20 per cent over and above the APM prices for ONGC and OIL till complete freedom This has been approved by the Cabinet he saidAs much as 34 per cent of APM gas is allotted to the power sector in 202122 17 per cent to the fertilizer industry which impacts food prices and 22 per cent to the city gas sectorThe committee also recommended that gas should be brought under the Goods and Services Tax or GST regime Having a common taxation such as GST for gas in lieu of state level VATs which vary from 3 per cent to as high as 24 per cent will help develop the marketThis story has been sourced from a third party syndicated feed agencies Midday accepts no responsibility or liability for its dependability 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