Domestic Natural Gas Prices Reduced, Government Caps Prices

The Ministry of Oil has reduced the price of domestic natural gas to USD 8.44 per million metric British thermal units (mmBtu) for June 2024, down from USD 8.90 in the previous month. 

Despite this reduction, the price will remain capped at USD 6.5 per mmBtu under the current pricing formula, as part of the government’s efforts to stabilise the market.

The new pricing mechanism, introduced by the government, sets a floor price of USD 4 per mmBtu and a ceiling price of USD 6.5 per mmBtu for domestic gas. This applies to natural gas produced from legacy and oil fields managed by Oil and Natural Gas Corporation Ltd (ONGC) and Oil India Limited (OIL). 

Under this regime, domestic gas prices are linked to imported crude oil prices, pegged at 10 per cent of the Indian crude basket, with monthly updates to reflect current market conditions. This pricing reform follows recommendations from a government-appointed panel led by Kirit Parikh, an energy expert and former member of Niti Aayog. 

Established in 2022, the panel aimed to overhaul the pricing structure for domestically produced natural gas to stabilise the market for both producers and consumers. The primary goals included boosting domestic gas production to meet the target of deriving 15 per cent of India’s energy from natural gas by 2030 and ensuring fair pricing for consumers.

Key recommendations from the Parikh committee included a fixed pricing band for gas from legacy fields, which constitute two-thirds of the country's total natural gas production. The panel advised linking the price of gas produced by state-owned companies from fields allocated on a nomination basis to imported crude oil prices, with a minimum floor price of USD 4 per mmBtu and a ceiling of USD 6.5 per mmBtu. 

The ceiling rate for APM gas from legacy fields will see an annual increment of USD 0.5 per mmBtu. The current pricing formula will remain for gas fields with challenging geologies, such as Reliance Industries and British Petroleum’s KG-D6.

Additionally, the committee recommended integrating natural gas into the Goods and Services Tax (GST) regime to streamline taxes and prioritise city gas in the allocation of APM gas. This ensures the city gas sector falls under the ‘no-cut’ category, meaning supplies to other consumers will be curtailed first in the event of a production decline.