Indian panel suggestions will help gas consumers: ICRA
The recommendations of the government-appointed gas price review panel led by Kirit Parikh, if implemented, will be favourable for the consumers due to the cap on pricing, Sai Krishna, vice president & sector head of corporate ratings, ICRA told NGW.
The panel’s recommendations were sent to the Indian oil and gas ministry on November 30. If these recommendations get the ministry’s go-ahead the proposals will be sent to the cabinet for its nod.
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The Kirit Parikh panel recommends a fixed floor of $4/mn Btu for gas produced from legacy and old fields which is priced on the basis of the administered pricing mechanism (APM), while a cap of $6.5/mn Btu, which will be gradually increased by $0.5/mn Btu over the next few years.
This recommendation will impact the pricing of gas produced by state-run Oil and Natural Gas Corporation and Oil India.
“This will result in cost savings for sectors like city gas distribution which are the main consumers of domestic gas for CNG – transport and PNG [piped natural gas]-domestic segments,” Krishna said. “Lower domestic gas prices would also reduce government of India’s subsidy burden for the fertilizer sector. Also, lower domestic gas prices would lead to a more competitive cost of generation for the domestic gas-based power generation projects.”
Krishna said that while the fixed floor will ensure the producers are above to recover their cost of production, in case the global gas prices witness a sharp reduction, the dynamic ceiling will mitigate the impact of sharp increases in gas prices and prevent price shock to consumers, as witnessed in last one year with periodic upward revision in CNG and PNG prices.
The prices of locally-produced gas are set every six months through a formula linked to global rates, which have risen sharply in the last six months.
Full deregulation of prices by 2027
The committee, which was set up by the government to review the pricing formula for gas produced in the country, has also recommended the complete liberalisation of natural gas prices by January 1, 2027.
“The recommended deregulation of gas prices from 2027 should be favorable for the domestic producers,” he said. “While it is expected that with the APM prices being linked to crude prices, the volatility will be lower and hence the gradual increase in ceiling rates and eventual deregulation of prices by 2027 should not have adverse impact on consumers, in case the gas prices remain elevated or witness sharp volatility, the consumption under a deregulated regime may be impacted and government may have to provide some support to priority sectors in some other form like subsidy/direct benefit transfer to consumers etc.”
The panel has also recommended linking of APM gas prices to crude oil prices, instead of the current practice of pricing linked to gas prices at various global hubs and removal of the cap on prices for difficult fields from January 1, 2026. The panel has also suggested the inclusion of natural gas under the goods and services tax regime.