Kirit Parikh panel recommendations: 'Remove caps on gas prices by 2027'

India should have completely free and market-determined pricing for natural gas extracted from legacy fields and remove all caps by January 1, 2027, the Kirit Parikh committee constituted to review gas prices has recommended in its report, which was submitted to the Centre on Wednesday.

Till then, the committee has suggested a floor price of $4 per MMBtu (metric million British thermal unit) be kept in place to cover the cost of gas production by Oil India (OIL) and the Oil and Natural Gas Corporation (ONGC), Parikh told Business Standard.

The committee has also recommended a ceiling price of $6.5 per mmBtu, which may be increased yearly by about $0.5 per mmBtu till 2027, Parikh said.

At present, the government fixes the prices of gas produced from the old fields of state-run ONGC and OIL. Such fields account for about 80 per cent of annual gas output of about 91 billion cubic metres.

The report also recommends that there should not be any tinkering with the existing pricing formula for difficult fields such as KG-D6 of RIL and BP PLC.

An internal review will now be conducted on the report, which was submitted to the Ministry of Petroleum and Natural Gas, before the ministry places all possible changes to the existing pricing regime before the Union Cabinet for approval.

“If implemented, this move would be positive for downstream companies such as IGL, MGL, and Gujarat Gas, marginally negative for ONGC and neutral for Reliance Industries (RIL). We expect lower sourcing costs to benefit the CGDs [city gas distributors] on the margin front to an extent and the rest be passed onto to customers,” according to a report by ICICI Direct Research.

According to the panel, the moves would help ease the inflationary pressure on domestic users. It also stressed that its recommendations would help achieve the government’s target of raising the share of gas in India’s energy mix to 15 per cent by 2030 from around 6.4 per cent at present. Also, almost 50 per cent of natural gas used domestically is imported.

The committee was set up in September to review the gas pricing formula to ensure fair prices to consumers after state-set prices of gas from old fields and a ceiling price for output from difficult blocks rose to a record high.

Other suggestions

• Fixed floor price of $4 per MMBtu to offset earnings loss by ONGC & OIL
• Ceiling price of $6.5 per MMBtu to be raised by $0.5/MMBtu till 2027 
• No change suggested for difficult fields such as KG-D6 run by RIL and BP PLC
• Measures to boost gas in energy mix to 15% by 2030