Home / Industry / Energy /  Parikh panel submits report, suggests floor and ceiling price on gas from legacy fields

NEW DELHI : The Kirit Parikh committee on gas pricing on Wednesday submitted its report to the petroleum ministry. 

The panel has suggested that a floor price of $4 per million British thermal unit and a cap or ceiling price of $6.5 per mmBtu on gas from old or legacy fields. State run ONGC and OIL largely operate legacy fields in the country.

The panel has also recommended the prices of domestic gas should be linked to the international prices. It has suggested removal of price cap in the next 3 years. 

The price of gas from difficult fields, including deepwater, ultra-deepwater, and high pressure-high temperature areas such as Reliance Industries Ltd and its partner BP Plc-operated deep sea D6 block in KG basin currently has a cap.

On Tuesday, speaking to reporters, Parikh said that gas under Administered Pricing Mechanism (APM) has to be treated separately.

 “There is a lot of legacy in terms of APM. So many decisions have been taken in the past, and so many different fields are there. So, it is a huge labyrinth of pricing. We have tried to simplify and straighten," Parikh noted.

Talking of the rationale behind the ceiling and floor prices suggested for APM gas or the gas produced from legacy fields, he said that the gas primarily goes into city gas distribution, fertilizer production and power plant and objecting of the panel was to get a fair price for the consumers.

 “APM gas, which ONGC and OIL produce, in their allocated field. This is fixed by the government. We have said that lower (floor) price should be implemented as ONGC and other companies should be able to cover their cost of production, and we have recommended an upper price as we don’t want to disturb the market," the chairman of the panel had said.

The ministry will now consider the recommendations of the panel.

Under the current mechanism, prices are reviewed every six months —1 April and 1 October —based on prices in gas surplus nations such as the US, Canada and Russia in a year with a lag of one quarter.

From 1 October, the price of gas produced from old fields, which contribute nearly two-thirds of India’s natural gas production, was increased to $8.57 per million British thermal unit (mmBtu) from $6.1/mmBtu. This was the third price increase since April 2019.

Prashant Vasisht, Vice President and Co-Head, Corporate Ratings, ICRA Limited said: "The recommendations of the Kirit Parikh committee on gas pricing are pragmatic and balanced taking in view the interests of both consumers and producers of gas. The floor and ceiling prices provide healthy gas realization to Upstream producers with graded increases over the next 5 years moving to full decontrol from January 1, 2027."

Additionally, the removal of the cap on prices for difficult fields from January 1, 2026 provides impetus for development of challenging fields, he said. 

"From the consumer’s perspective lower gas prices are a positive. The reduction in gas price should result in a cut in CNG and PNG (domestic) prices by the CGD players and would improve the conversion economics for the end consumers thereby stimulating demand, " he said. 

CareEdge Ratings in a statement said that the recommendations would act as a great balancing act to safeguard the interest of gas consumers, city gas distribution companies and gas producers from difficult fields.

"It shall boost the use of natural gas and shall help the Government to contain high inflation, " it said. 

Free pricing of domestic gas from difficult fields would attract sizeable investment from upstream companies which could lead to higher domestic gas production in the long run, it said. 

However, the CareEdge statement added that producers of domestic gas from legacy fields under APM pricing mechanism may stand to lose around 23,000 cr in FY24. 

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