Local gas prices may be tied to crude from Apr

In November, the Kirit Parikh committee made several recommendations to the petroleum ministry, including pricing locally produced natural gas at 10% of crude oil prices and implementing a floor price of $4 per mmBtu and a ceiling price of $6.5 per mmBtu.

“Efforts are on to get things cleared by 1 April. The new rates are about to come. It is being tried that the new rates come on the basis of the formula suggested by the Parikh panel,” the person cited above said, requesting anonymity.

Another person aware of the development said that the committee suggested linking the prices to crude oil in this case. “They would be linked to the prices at which India purchases oil, which would be the Indian crude basket,” the person said, also declining to be named. The Indian basket of crude oil represents a derived basket comprising sour grade (Oman and Dubai average) and sweet grade (Brent Dated) of crude oil processed in Indian refineries.

Currently, India reviews gas prices every six months, based on rates in surplus gas nations with a one-quarter lag. As of 1 October 2022, the price of gas from old fields, which make up nearly two-thirds of India’s production, rose to $8.57/mmBtu, marking the third increase since April 2019.

Kirit Parikh, chairman of the panel, said: “Globally, gas prices have been linked to crude for several years now. Since efforts are on to promote the use of cleaner fuels, such as PNG (piped natural gas) and CNG (compressed natural gas), over LPG and diesel, respectively, it is expected that linking the price of gas to crude would make PNG and CNG more affordable compared to LPG and diesel.”

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He noted that India imports a significant amount of LPG and crude oil to meet its energy requirement, and a higher demand for PNG and CNG, which can substitute both LPG and diesel, a byproduct of crude oil, may help curb import bills.

In November, he said that the ceiling and floor prices had been suggested for gas from legacy fields as the fuel from there primarily goes into city gas distribution, fertilizer production and power plant, and the panel’s objective was to get a fair price for the consumers.

India’s potential shift to crude-linked gas prices may not have an immediate impact on rates, one of the officials cited above said, as both gas and crude prices have declined from the multi-year highs of 2021.

Queries emailed to the spokesperson for the petroleum and natural gas remained unanswered till press time.

Other panel recommendations include linking domestic gas prices to international prices in years ahead and removing the price cap in the next three years. The price of gas from difficult fields, including deepwater and high-pressure-high-temperature areas, already has a cap.

Historically, India’s natural gas consumption has been significantly higher than its domestic production, and the difference is met through imports.

A CareEdge Ratings report showed that in FY22, the total consumption of natural gas in India stood at 180 million standard cubic metres per day (MSCMD), of which 95 MSCMD was met through domestic production and 85 MSCMD through imports.

“According to the existing formula, the price of domestic gas would otherwise have been at $10/mmBtu for FY24. The revision in the pricing mechanism is likely to result in a lower realization of at least $3.50/mmBtu for domestic gas production from legacy fields.

Accordingly, CareEdge Ratings believes that domestic gas producers of legacy fields could have the lower realization of natural gas to the extent of ₹23,000 crore in FY24,” the report published after the submission of the Parikh panel’s report in November said.