New Committee established by the government to review gas pricing formula

7 Sep 2022 , 07:56 AM

In an effort to temper the significant price boost that producers would have otherwise received, the government has established a panel to study the formula that determines the pricing of gas generated by firms like ONGC and Reliance.

According to a directive from the oil ministry, a committee led by former planning commission member Kirit S. Parikh will propose a “fair price to the end consumer.”

The group, which will comprise members of the association of gas producers as well as ONGC and OIL producers, has been instructed to submit its report by the end of the month.

The decree stated that it also includes representatives from the fertilizer ministry, Indian Oil Corporation (IOC), private city gas operators, and state gas provider GAIL.

The government developed a formula for locally produced gas in 2014 using pricing in nations with gas surpluses. Up until March 2022, the rates predicted by this method were moderate and occasionally less than the cost of production, but beyond that point, they spiked rapidly, reflecting the increase in worldwide rates following Russia’s invasion of Ukraine.

Since April 1, the cost of gas from old fields–which is primarily produced by state-owned companies like ONGC and Oil India Ltd.–has more than doubled to $6.1 per million British thermal units and is predicted to reach $9 next month.

Similar to this, from April 1 onward, the prices paid for gas from challenging areas like Reliance’s deep-ocean KG-D6 increased to $9.92 per mmBtu from $6.13. Next month, they’re anticipated to increase to $12.

Inputs like gas are used to provide both power and fertilizer. Inflation was fuelled by the price increase of this fuel, which is also transformed into CNG and pumped into residential kitchens.

In addition to suggesting a “market-oriented, transparent and dependable pricing regime for India’s long-term strategy for securing a gas-based economy,” the panel was instructed to recommend a price that is fair to end-users, according to the directive.

By 2030, the government plans to increase natural gas’s proportion in the primary energy mix from its present 6.7% to 15%.

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