PNG, CNG Prices Set To Fall As India Links Domestic Gas Prices To Crude Basket

India will now peg domestic gas prices to the Indian crude basket as the war in Ukraine has increased volatility at global gas trading hubs.

The Cabinet has approved the revised domestic gas pricing guidelines, which is expected to significantly decrease prices of piped natural gas for households and compressed natural gas for transport. The reduced prices will also lower the fertiliser subsidy burden and help the domestic power sector.

Effective from April 8, domestic gas prices will be linked to global crude oil prices as reflected in the Indian crude basket, Information and Broadcasting Minister Anurag Thakur said, following a meeting of the Cabinet Committee on Economic Affairs. A detailed notification will be issued on April 7.

According to a statement issued by the Ministry of Petroleum and Natural Gas, these new guidelines will apply to gas produced from nomination fields of ONGC/OIL, New Exploration Licensing Policy blocks, and pre-NELP blocks, where Production Sharing Contract calls for government approval of prices.

The price of natural gas from these fields will be 10% of the monthly average of the Indian crude basket and will be announced on a monthly basis. The data from the previous month's Indian crude basket price will now form the basis for determining the APM price.

"The revised guidelines link prices to crude, is now followed in most industry contracts, and is more relevant to our consumption basket and has deeper liquidity in global trading markets, on a real time basis," the statement said.

Currently, the domestic gas prices are determined according to the new domestic gas pricing guidelines, 2014, which reviews domestic gas prices every six months based on volume-weighted prices prevailing at four gas trading hubs. These guidelines have been rationalised due to significant time lag and high volatility.

Gas produced by ONGC and OIL from their nomination blocks will be within the floor and ceiling price.

“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," the statement said.

This is expected to incentivise ONGC and OIL to make additional long-term investments in the upstream sector, which could lead to increased production of natural gas and a reduction in import dependence of fossil fuels.

The government has aimed at increasing the share of natural gas in India's primary energy mix from the current 6.5% to 15% by 2030.