Domestic Gas Linked to Oil Prices in Cabinet Decision

· Natural gas shall be 10% of the monthly average of Indian Crude Basket

· Gas produced by ONGC & OIL from their nomination blocks, the Administered Price Mechanism (APM) price shall be subject to a floor and a ceiling.

· New wells or well interventions in the nomination fields of ONGC & OIL, would be allowed a premium of 20% over the APM price.

· Government has targeted to increase the share of natural gas in primary energy mix in India from current 6.5% to 15% by 2030.

· Domestic gas prices for a 6 month period based on the volume weighted prices prevailing at four gas trading hubs - Henry Hub, Albena, National Balancing Point (UK), and Russia.

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Narendra Modi, has approved the revised domestic natural gas pricing guidelines for gas produced from nomination fields of ONGC/OIL, New Exploration Licensing Policy (NELP) blocks and pre-NELP blocks, where Production Sharing Contract (PSC) provides for Government's approval of prices. The price of such natural gas shall be 10% of the monthly average of Indian Crude Basket and 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. 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. A detailed notification is being separately issued.

The new guidelines are intended to ensure stable pricing regime for domestic gas consumers while at the same time providing adequate protection to producers from adverse market fluctuation with incentives for enhancing production.

Government has targeted to increase the share of natural gas in primary energy mix in India from current 6.5% to 15% by 2030. The reforms shall help expand the consumption of natural gas and will contribute to achievement of target of emission reduction and net zero.

These reforms are a continuation of the various initiatives taken by Government of India to protect the interests of consumers by reducing the impact of increase in international gas prices on gas prices in India by significantly increasing the domestic gas allocation to City Gas Distribution sector.

The reforms will lead to significant decrease in prices of Piped Natural Gas (PNG) for households and Compressed Natural Gas (CNG) for transport. The reduced prices shall also lower the fertilizer subsidy burden and help the domestic power sector. With the provision of a floor in gas prices as well as provision for 20% premium for new wells, this reform will incentivize ONGC and OIL to make additional long term investments in the upstream sector leading to greater production of natural gas and consequent reduction in import dependence of fossil fuels. The revised pricing guidelines will also promote lower carbon footprint through the growth of gas-based economy.

Currently, the domestic gas prices are determined as per the new Domestic Gas Pricing Guidelines, 2014 which were approved by Government in 2014. The 2014 pricing guidelines provided for declaration for domestic gas prices for a 6 month period based on the volume weighted prices prevailing at four gas trading hubs - Henry Hub, Albena, National Balancing Point (UK), and Russia for a period of 12 months and a time lag of a quarter.

As the earlier guidelines based on 4 gas hubs had a significant time lag and very high volatility, the need for this rationalization and reform was felt. The revised guidelines make prices linked to crude, which is a practice now followed in most industry contracts, is more relevant to our consumption basket and has deeper liquidity in global trading markets, on a real time basis. With the changes now approved, data of Indian Crude basket price from the previous month would form the basis for APM gas price determination.