India has approved a revamped natural gas pricing structure, which will take effect on April 8. Under this new system, the price of locally generated gas would be benchmarked to 10% of the price of global hydrocarbons and will be changed monthly.
For conventional gas extracted from more established fields, such as those managed by state-controlled ONGC and Oil India, the new pricing structure establishes a base price of $4 per million Btu and a ceiling price of $6.50 per million Btu.
These prices will be revised every month. On April 6, Prime Minister Narendra Modi convened a Cabinet Committee on Economic Affairs meeting, which ultimately gave its approval to the system. Anurag Thakur, the minister of information and broadcasting, claimed that the ceiling price would be maintained for the next two years and then increase by $0.25/million British thermal units (Btu) annually after that.
According to the statements made by the oil ministry of India, the reforms will bring about a sizeable reduction in piped natural gas (PNG) prices for households and compressed natural gas (CNG) for transportation. The decreased prices would also lessen the financial burden imposed by fertiliser subsidies and benefit the domestic power sector.
Currently, domestic petrol prices are adjusted every six months and are tied to those found at Henry Hub, NBP, as well as those found in Canada and Russia. To deregulate petrol prices nationwide, the government-appointed group led by Kirit Parikh made several key recommendations, some of which were implemented by the new system.
The Petroleum and Natural Gas Regulatory Board of India decided the week before last to keep the price of conventional gas at $8.57/mn Btu for gas produced by state-controlled enterprises. However, the board opted to fix the gas price generated from problematic fields at $12.12/mn Btu.
ONGC and Oil India will begin exporting gas from their older assets for $6.50 per million British thermal units this month. (Btu). On the other hand, gas coming from difficult fields will not be subject to the new pricing structure. The western offshore and the Krishna-Godavari (KG) basins are examples of what are considered to be challenging fields because of the conditions under which natural gas must be harvested. These conditions include deep water, ultra-deep water, high temperature, and high pressure.
Thakur stated that gas produced from new wells or well interventions in ONGC and Oil India’s nomination fields would be eligible for a 20% premium over India’s administered price mechanism (APM). He added that a distinct notification with more information would be issued later. The APM determines prices for petrol sold by state-owned producers and establishes an industry-wide minimum price.
This reform will encourage ONGC and Oil India to make additional long-term investments in the upstream sector by providing a floor in gas prices and a 20% premium for new wells. The results of this reform will be an increase in the production of natural gas and a reduction in the import dependence on fossil fuels, according to the oil ministry.
Promotion of production and consumption
The oil ministry added that these reforms are also intended to assure a stable pricing regime for domestic petrol consumers, provide adequate protection for producers against adverse market fluctuations, and encourage more production.
Plans have been laid out in New Delhi to transition the Indian economy to one that is reliant on petrol. The percentage of primary energy that comes from natural gas is expected to rise from its current level of 6 per cent in 2022 to 15 per cent in the year 2030, according to projections made by analysts. It also has plans to expand domestic consumption of petrol while transitioning away from fuels that are more polluting, such as coal, with the goal of lowering carbon emissions by one billion metric tonnes by 2030 from the levels in 2005 and reaching net zero emissions by 2070.
In February, India’s LNG consumption increased by 7% year-over-year to 4.84bn m3, while imports increased by 11% year-over-year to 2.25bn m3, according to data from the oil ministry. The domestic production of natural gas increased by 13 per cent in February, reaching 2.6 billion cubic meters, with offshore fields accounting for 1.8 billion cubic metres and onshore fields for 806 million cubic metres.
Following the decline of the Covid-19 pandemic, India’s natural gas production has been consistently rising. Gas output from India’s offshore fields, such as the Mumbai High and KG basin in east India, increased by 4.5pc from the previous year to 17.49mn t (23.2bn m3) last year, according to data from the oil ministry. Meanwhile, gas production from onshore fields remained essentially unchanged at 7.8mn t. India’s natural gas output increased by 3% from 2021 to 2022, reaching 25.18 million tonnes.