The oil ministry has accepted the key
recommendations of the Kirit Parikh committee on domestic natural gas pricing and begun consultations with other ministries before it sends a proposal to the Cabinet.
The oil ministry’s proposal, based on the panel’s recommendations, includes pricing domestic natural gas at 10% of the crude oil price, with a floor of $4 and
ceiling of $6.5 per mmBtu, according to people familiar with the matter. At present, domestic gas, which follows the so-called administered price mechanism (APM), is priced in line with the average rates at international gas
The oil ministry is seeking the views of the Niti Aayog and the ministries of finance, fertiliser, steel and power on the proposal. A final proposal after incorporating the suggestions from the Aayog and other ministries will be
prepared soon and presented to the Cabinet, one of the people said.
The oil ministry’s proposal also includes a provision for an annual increase of $0.50 per mmBtu in the APM gas price ceiling, elimination of the price ceiling for gas from difficult elds in 2026 and the end of price regulation for APM gas in 2027.
A floor price for APM gas will ensure remunerative prices for producers such as Oil & Natural Gas Corp and Oil India, which had in recent years received prices that were lower than their cost of production. Elimination of price regulation will help align the domestic gas market with the global market,but may push up input costs for gas consumers.
By linking domestic gas prices with crude, the government is betting that crude oil prices will likely remain more stable than natural gas prices in the
international market. Natural gas prices have gone from a record low to a record-high in just three years, shaking several consumers’ faith in the gas market.
The oil ministry had set up a committee headed by former planning commission member Kirit Parikh last year to recommend a fair price to consumers in the wake of the skyrocketing international gas prices that had also sent domestic prices to record-high levels.
Compressed natural gas (CNG) as well as the gas used for cooking have become very expensive. High gas prices have also increased the fertiliser subsidy burden for the government.