Centre looks to tweak natural gas pricing policy

The government is planning to overhaul the natural gas pricing policy with an aim to cushion consumers from global shocks and ensure fair rates for both buyers and producers, according to people familiar with the matter. The oil ministry may soon set up a committee under economist Kirit Parikh to recommend ways to keep domestic natural gas prices stable and affordable for consumers while offering decent returns to producers, they said.

The ministry has also asked producers and consumers such as fertiliser, power and city gas companies to nominate representatives to the committee, the people cited earlier said.

The committee’s recommendations will help frame a new policy to replace the gas guidelines of 2014, under which volume-weighted average prices of gas in the US, Canada, Europe and Russia are used to determine domestic prices every six months, they said.

Oil prices in the international markets have been sky-high for a year now, driving up the price in India which doubled in April to $6.1 per mmBtu and is expected to top $10 in the October revision.

Spiralling prices have shaken local gas consumers and spurred the government to relook at the pricing policy, people cited earlier said.


“There is no reason for us to import inflation,” one of the persons cited earlier said, adding that local prices should reflect local conditions, not global frenzy.

A sharp economic recovery from the Covid-led slump and the Russian supply curbs following the invasion of Ukraine have driven up gas prices to record-high levels.

The effects of international price movements are reflected in domestic rates with a lag, as the current formula uses international price data for the trailing four quarters with a one-quarter lag.

Producers have often complained about it. The effect of delayed transmission is that India is yet to feel the full impact of the global gas storm and would continue to feel the price heat months after the global turmoil has faded. It will be a challenge for the committee to balance the interests of both producers and consumers.

Before the recent surge, domestic formula prices have mostly remained benign, in line with global rates, which were affected by the liquefied natural gas (LNG) glut or Covid in the last few years.

This has prompted local producers to sell at rates below their cost for at least two years. Producers have often urged the government to lift all price restrictions.

Consumers have often sought affordable rates, while city gas companies--a key consumer segment--have recently demanded a ceiling on domestic prices to keep compressed natural gas (CNG) fuel attractive with respect to petrol.

For years, city gas companies have made big profits by obtaining traditionally cheaper domestic gas and selling CNG to drivers at market rates.