Domestic Gas Price Up For May

 What’s in today’s article?

• Why in news?
• New domestic gas pricing formula
• Background
• What are the changes to the pricing mechanism?
• News Summary: Domestic gas price up for May

 

Why in news?

• The price of domestic natural gas for May has been set at $8.27 per million British thermal units (mBtu), up from $7.92 for most of April 2023.
• This increase is in line with the new domestic gas pricing formula introduced in April 2023.

 

New domestic gas pricing formula

Background:

• In April 2023, the Union Cabinet approved significant changes in the pricing regime for domestic natural gas under the ambit of the administered price mechanism (APM).
  • Under the APM, the Indian government sets the price of natural gas produced by oil and gas companies.
  • The price of APM gas has been determined as per the ‘modified’ Rangarajan formula since November 2014.
• These changes mainly applied to gas produced by legacy fields, or nomination fields, of national oil companies – ONGC and OIL.
  • Nomination fields are acreages that the government awarded to ONGC and OIL before 1999, after which auctions became the basis of awarding oil and gas blocks.

 

What are the changes to the pricing mechanism?

• New Pricing mechanism based on recommendations of Kirit Parikh Panel
  • The revised pricing mechanism is based on recommendations of a panel headed by Kirit Parikh.
• Natural gas from legacy fields will be indexed to crude oil price
  • The natural gas produced from legacy or old fields will now be indexed to the crude oil price.
    • Earlier, the domestic gas price used to be the weighted average price of four global benchmarks, namely, - US-based Henry Hub, Canada-based Alberta gas, UK-based NBP, and Russian gas.
  • The price of such natural gas shall be 10 per cent of the monthly average of Indian Crude Basket and shall be notified on a monthly basis (rather than biannual revisions in prices in the earlier system).
• For Gas produced from Nomination fields
  • The gas produced by ONGC and OIL from their nomination blocks and the administered price mechanism (APM) shall be subject to a floor and a ceiling.
    • It will have a floor price of $4/ mBtu and a ceiling of $6.5/ mBtu.
  • However, the gas produced from new wells or well interventions in the nomination fields of ONGC and OIL would be allowed a premium of 20 per cent over the APM price.
    • New wells are drilled in areas where oil and gas reserves are known or suspected to exist but have not yet been developed.
    • Well interventions, on the other hand, involve various techniques that are used to increase the productivity of existing wells.
• No revision in the ceiling price for two years
  • There shall be no revision in the ceiling price for two years, after which the cap will increase by 25 cents per year.
• No change in pricing formula for gas from difficult blocks
  • The changes in pricing formula for domestic APM gas do not apply to gas production from difficult acreages — deep water, ultra-deep water, high-temperature, and high-pressure fields.

 

News Summary: Domestic gas price up for May

• As per a notification issued by the oil ministry’s Petroleum Planning and Analysis Cell, the price of domestic natural gas for May has been set at $8.27 per million British thermal units (mBtu).
  • The price for most of April 2023 was $7.92.
• Despite the increase in notified price, consumers will continue to be charged $6.50 per mBtu — the ceiling price of gas as per the new pricing regime.
• This means that this price revision is unlikely to result in price changes in case of fuels like compressed natural gas (CNG) for transportation and piped natural gas (PNG) for household use.

 

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Q1) What is Piped Natural Gas (PNG)?

Piped Natural Gas (PNG) is a type of natural gas that is delivered to households and businesses through a network of pipelines. Unlike compressed natural gas (CNG), which is delivered in high-pressure cylinders, PNG is supplied at a lower pressure and is delivered through a network of underground pipelines.

 

Q2) What is US-based Henry Hub?

The Henry Hub is an important benchmark for natural gas prices in North America, and it is used as a reference point for futures contracts traded on the New York Mercantile Exchange (NYMEX). The prices quoted at the Henry Hub are considered the standard for natural gas prices in the United States and are used as a basis for pricing natural gas contracts in other regions.

 

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Source: Domestic gas price for May set at $8.27, consumers will continue paying ceiling price of $6.50 | WION | Indian Express