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Published: Mar 31, 2023
Updated: Mar 31, 2023

Union cabinet to consider imposing price caps on natural gas to control input costs

The Union Cabinet is expected to consider imposing price caps on the majority of natural gas produced in India to control input costs for consumers, including CNG and fertilizer companies. The government typically sets prices for locally produced natural gas every six months, with two different formulas used for old and new fields. However, due to a global spike in energy prices following Russia's invasion of Ukraine, the rates of natural gas produced locally have skyrocketed. In response, the government is considering capping the price of natural gas to keep costs under control.

Recommendations of the Kirit Parikh Committee

In 2022, the government created the Kirit Parikh Committee to revise gas prices in a way that benefits both producers and consumers and advances India's goal of becoming a gas- based economy. The committee has recommended changing the indexation for gas from legacy fields to 10% of the prevailing Brent crude oil prices. This would replace the current method of using rates of gas in surplus nations to determine their price. However, the new method would have a floor or base price of USD 4 per mmBtu and a cap or ceiling price of USD 6.50. The panel suggested increasing the ceiling price of USD 6.50 by 50 cents per mmBtu every year to move towards marketing and pricing freedom for APM fields. The committee also recommended a premium of 20% over and above the APM prices for ONGC and OIL to incentivize additional production from a new well or well intervention in the nomination blocks. As much as 34% of APM gas is allotted to the power sector in 2021-22, 17% to the fertilizer industry, and 22% to the city gas sector.

Impact on the gas-based economy

India aims to increase the share of natural gas in its primary energy mix to 15% by 2030 from the current level of around 6.3%. APM gas fields were allotted to ONGC and OIL before 1999, and production from these fields does not attract profit-sharing with the government. The pricing formula for APM gas is benchmarked to gas prices at international gas hubs in surplus nations every six months based on the weighted average price. The ceiling price of natural gas covers the cost of production for producers, while also protecting consumers, particularly CNG users, kitchens using piped cooking gas, and fertilizer plants that have grappled with soaring input costs. APM gas accounts for the majority of CNG and kitchen gas supplies.

Move aimed at controlling input costs for consumers

The government's move to impose price caps on natural gas is an attempt to control input costs for consumers and protect them from the global spike in energy prices. The recommendations of the Kirit Parikh Committee are aimed at balancing the interests of both producers and consumers while advancing India's goal of becoming a gas-based economy. By increasing the share of natural gas in its primary energy mix, India aims to reduce its dependence on fossil fuels and promote a cleaner and more sustainable energy future.