Government defends gas price cap; says city gas distributors need to share their 'super-high profits'

The Indian government on Thursday evening approved revisions to the 2014 gas pricing guidelines in a move to provide relief to consumers suffering from the recent surge in global gas prices. The Information and Broadcast Minister, Anurag Thakur said that last year gas producers got $1.79/mmBtu as prices had crashed but now, ONGC, OIL etc. have now been assured a minimum $4/mmbtu rate.

The government is trying to justify the capping of gas prices at $6.5/mmBtu while the Administered Price Mechanism or APM price currently works out 2 dollars higher at $8.57 and lower than current rates as well.

“The APM price is still dynamic, if the crude oil price falls as it had done in March before the OPEC production cuts, then gas producers are ensured a floor price,” said a North Block official to CNBC-TV18.

Gas producers will be able to charge 20 percent above the administered price for new wells. The cabinet press brief says, “Gas produced from new wells or well interventions in the nomination fields of ONGC & OIL, would be allowed a premium of 20 percent over the APM price.”

The government further clarified that the freedom to charge a premium of 20 percent over the administered price would be for 5 years and DG Hydrocarbon would work out details within 3 months.

“This gas would also be subject to the Government’s policy related to the commercial utilisation of natural gas. This gas shall be allocated separately from the APM gas by MoP&NG. The allocation shall be done for a period of 5 years with suitable take or pay obligation, as notified by MoPNG or as contractually agreed to. The modalities for recognition of new wells or well intervention shall be finalised by Directorate General of Hydrocarbon and approved by MoP&NG within a period of three months," the government notification stated.

Also, the Petroleum Planning & Analysis Cell (PPAC) determined administered price will apply to those gas blocks where prices have been decided with government approval, but without the floor or ceiling price caps. The government notification stated, “ Subject to the provisions of respective Production Sharing Contracts (PSCs), this APM price, so declared by PPAC, would also apply where PSCs of NELP Blocks or Pre NELP blocks provide for Government’s approval of prices. Floor and ceiling shall not apply to such APM price for gas produced from fields under these regimes.”

Instead, the government is trying to encourage greater use of PNG and CNG as alternative fuels. Even at current prices, PNG is far cheaper than LPG, the official added. By capping gas prices, the government is also ensuring PNG's consumer base expands and it does not have to subsidise oil marketing companies for LPG losses.

Additionally, the government will also be monitoring CNG and PNG prices on a regular basis, without any delay. “PPAC has been mandated to prepare and maintain a portal for monitoring CNG/PNG consumer prices on a dynamic basis. PPAC will develop a suitable mechanism for receiving regularly updated data from the CGD entities. The portal would be made dynamic to reflect the changing prices without delay,” the notification said.

The government has also stated how and when the administered gas prices will be announced. “The APM prices would be declared on a monthly basis by PPAC on the last day of the current month. For determining this APM price for the relevant month, the average of the daily prices data of India Crude Basket price shall be taken for the period 26th day of the previous month to the 25th day of the current month," the notification stated.

For example, APM prices for May 2023 would be declared on 30th April 2023 based on the average of daily prices for the Indian Basket of crude for the period March 26 2023 to April 25 2023.