Govt cuts natural gas price for CNG, cooking use for first time in 2 yrs

The price of natural gas from legacy fields allocated to state-owned ONGC without auction has been reduced from $6.75 to $6.41 per mmBtu

For the first time in two years, the government has reduced the price of natural gas used for producing CNG for vehicles and cooking gas, reflecting a decline in benchmark rates.

The price of natural gas from legacy fields allocated to state-owned ONGC without auction has been reduced from $6.75 to $6.41 per million British thermal units (mmBtu), according to a notification from the Oil Ministry's Petroleum Planning and Analysis Cell (PPAC).

The reduction, which is the first since the government in April 2023 implemented a new formula to price such gas, will aid city gas retailers like Indraprastha Gas Ltd, Mahanagar Gas Ltd and Adani-Total Gas Ltd who had been reeling under cost pressures from rise in input cost. 

In April 2023, the Union Cabinet accepted an expert committee report to price on a monthly basis the gas from legacy fields, called APM gas, at 10 per cent of monthly average import price of crude oil with a floor of $4 and a cap of $6.5 per mmBtu. The cap price was to remain unchanged for two years and rise by $0.25 annually thereafter. In line with this, the cap rose to $6.75 per mmBtu in April.

In the first two years, the price of gas using this formula ranged between $7.29 per mmBtu and $9.12 but the cap ensured that the rate were fixed at $6.50 per mmBtu. In April, the price according to this formula came to $7.26 per mmBtu but the final rate was $6.75 in line with higher cap.

In May, the price came to $6.93 but was capped to $6.75 for consumers.

Since there has been a fall in international oil prices in view of uncertain demand outlook, the Indian basket of crude oil averaged around $64 in May. Using this as a benchmark, the APM gas price came to $6.41 per mmBtu on gross calorific value (GCV) basis, according to PPAC.

"For gas produced by Oil and Natural Gas Corporation/Oil India Ltd from their nomination fields, the APM price shall also be $6.41 per mmBtu on GCV basis" for the period June 1, 2025 to June 30, 2025, PPAC said.

The fall in benchmark also means that the price of gas that ONGC produced from new wells in the APM fields would also come down.

The government had allowed ONGC to charge 12 per cent of the oil price for the gas coming from new wells it drills. The higher price was to make up for the capex incurred in drilling new wells.

As much as 5 million standard cubic meters per day of gas - or a 10th of all gas produced by ONGC - comes from new wells, according to industry sources.

APM gas is one produced by state-owned firms Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) from fields that were given to them on nomination basis. This gas is the input that is used in the cooking gas piped to household kitchens as well as turned into CNG for running automobiles, making fertilizers and producing electricity.

Prior to April 2023, the price of gas produced from fields covered under the Administered Price Mechanism (APM) regime -- which accounts for 70 per cent of domestic gas production -- was determined semi-annually based on a formula that benchmarked it to average international prices at four gas trading hubs.

APM gas is provided to city gas distributors for supply to CNG and residential PNG segments, which together accounts for 60 per cent of their sales volume.

Subsequent to the April 2023 decision, APM gas prices are revised on a monthly basis but subject to ceiling and floor price. The ceiling price now is $6.75 per mmBtu and will rise by another $0.25 per mmBtu in April next year.

APM gas prices had seen wide fluctuations in the years running up to the April 2023 decision. From a low of $1.79 per mmBtu in 2021, to a high of $8.57 for the 6-month period ended March 2023.

The rate for difficult fields like KG-D6 of Reliance Industries has been set at $10.04 per mmBtu for six months beginning April 1 as compared to $10.16 in the preceding six months period, according to PPAC.