Big Relief As PNG And CNG Prices Set To Fall

Cabinet announces new pricing mechanism based on recommendations of expert panel chaired by economist Kirit Parikh

The Cabinet on Thursday announced a new pricing mechanism for the bulk of domestically-produced natural gas by Gas Public Sector Undertakings. 10% of India’s monthly average import price of crude oil with a floor of $4 per unit and a cap of $6.5. The move will effectively reduce costs of piped natural gas (PNG) supplied to kitchens and compressed natural gas (CNG) for automobiles by up to 11% from Saturday.

Announcing the decision on Thursday, Union Information and Broadcasting Minister Anurag Thakur said the decision coincides the Bharatiya Janata Party’s (BJP) foundation day and aims at providing relief to millions of consumers, particularly those using PNG and CNG across the country. “Hon’ble Prime Minister Narendra Modi has given the gift to the people on the foundation day… It is a good day and a good decision as this [decision] would benefit all – domestic [consumers], industrial [units] and farmers,” he said.

The minister said “the tentative impact of price reduction in APM (administered price mechanism) gas” would help PNG and CNG consumers. If CNG is priced at ₹92 per kg in Pune, it will be reduced to ₹87 a kg, he said. Similarly, PNG will cost ₹52 instead of ₹57. In Mumbai, if it is ₹54, it will become ₹52. In Delhi, it will be reduced from ₹53.49 to ₹47.49. In Bengaluru, it will drop from 58.5 to ₹52, he added. APM or the administered price mechanism is applicable to those blocks that have been given to state-run explorers — Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) – on nomination basis, without competitive bidding.

The Cabinet’s decision is based on the recommendations of an expert panel chaired by economist Kirit Parikh, which submitted its report on November 30, 2022, proposing a floor of $4 per unit and cap of $6.5 for natural gas produced from old APM fields operated by ONGC and OIL. As the committee’s mandate was limited to the review of the 2014-formula for APM gas , it did not tweak gas prices of difficult deep water fields such as Reliance-BP’s KG-D6, which is based on a different formula approved in 2016.

Thakur said the new formula “strikes a balance between interests of both consumers and producers”. India is heavily dependent on import of energy. It imports over 85% of crude oil it processes and 55% of natural gas.

According to an oil ministry statement, the new pricing formula is also applicable to so-called New Exploration Licensing Policy (NELP) blocks and pre-NELP blocks, where production sharing contracts (PSCs) between the government and energy exporters allow for the government’s approval of prices. However, the floor and ceiling is applicable to only to gas produced by ONGC and OIL from nominated blocks.

According to the new formula, the price of natural gas produced from the three categories of fields mentioned above shall be 10% of the monthly average of Indian crude basket [average cost of crude import] and shall be notified on a monthly basis. “For the gas produced by ONGC & OIL from their nomination blocks, the Administered Price Mechanism (APM) price shall be subject to a floor and a ceiling,” the statement added.

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