PNG, CNG to get cheaper as govt revises pricing formula

Piped natural gas (PNG) and compressed natural gas (CNG) are set to get cheaper after the Union Cabinet on Thursday approved a new pricing mechanism which also introduced a ceiling to ensure a stable price regime for consumers.

Under the new mechanism, the prices of natural gas will be linked to crude oil prices instead of tagging it with the prices in surplus nations like the United States, Canada and Russia.

Briefing media after the Cabinet meeting, Union Information and Broadcasting Minister Anurag Thakur said natural gas prices would now be revised every month instead of the current practice of bi-annual revision.

The new guidelines will lead to a significant decrease in the prices of PNG and CNG, the minister said. "It will also lead to a reduction in fertiliser subsidy burden and help the domestic power sector."

With the provision of a floor in gas prices as well as provision for a 20% premium for new wells, this reform is expected to incentivise ONGC and OIL to make additional long-term investments in the upstream sector leading to greater production of natural gas and consequent reduction in import dependence of fossil fuels.

“The new guidelines are intended to ensure a stable pricing regime for domestic gas consumers while at the same time providing adequate protection to producers from adverse market fluctuation with incentives for enhancing production,” according to an official statement released after the Cabinet meeting.

The Cabinet Committee on Economic Affairs chaired by Prime Minister Narendra Modi approved the revised domestic natural gas pricing guidelines for gas produced from nomination fields of ONGC/OIL, New Exploration Licensing Policy (NELP) blocks and pre-NELP blocks, where production sharing contract provides for Government's approval of prices.

As per the new guidelines, the price of such natural gas shall be 10% of the monthly average of Indian Crude Basket and shall be notified on a monthly basis.

For the gas produced by ONGC and OIL from their nomination blocks, the administered price mechanism (APM) price will be subject to a floor and a ceiling. Gas produced from new wells or well interventions in the nomination fields of ONGC & OIL would be allowed a premium of 20% over the APM price.

Currently, domestic gas prices are determined as per the new Domestic Gas Pricing Guidelines, 2014. The 2014 pricing guidelines provided for the declaration of domestic gas prices for a 6 month period based on the volume-weighted prices prevailing at four gas trading hubs - Henry Hub, Albena, National Balancing Point (UK), and Russia for a period of 12 months and a time lag of a quarter.