India is set to cut prices for gas produced from old blocks to $6.50 per million British thermal units (mmBtu) starting Saturday, according to the country’s information minister.
Revised gas pricing formula for India
The decision was made after the federal cabinet approved the recommendations of a gas committee report, which aims to ensure fair prices for consumers and combat inflation. The new pricing system applies to industrial buyers and companies in the fertilizer and city gas distribution sectors, and is set on a monthly basis.
The decision follows a review of India’s gas pricing formula by a committee headed by energy expert Kirit Parikh. This formula was introduced last year to address the issue of rising gas prices. In recent years, state-set prices for gas from old fields and a price cap for production from hard-to-reach blocks have reached record highs, raising concerns about inflation and the impact on consumers.
Under the new pricing system, the monthly price of gas produced from old blocks will be set at 10% of the monthly average of the Indian crude basket, with a ceiling of $6.5/mmBtu and a floor price of $4/mmBtu. Price ceilings and floors increase every two years by 25 cents. In the previous formula, India had linked gas prices to global benchmarks, such as Henry Hub, Alberta gas, NBP and Russian gas.
The economic consequences of the decision to lower gas prices in India
While lower gas prices are likely to impact the revenues of companies such as Oil and Natural Gas Corp (ONGC.NS) and Oil India Ltd (OILI.NS), which account for about 80% of India’s annual gas production, additional gas production from new wells through new investments in old blocks is being sold at a 20% premium, according to oil secretary Pankaj Jain.
The decision to lower gas prices is an important step towards ensuring fair prices for consumers and addressing inflation concerns. By setting prices based on the Indian crude basket, India seeks to create a more stable and predictable pricing system, which should benefit buyers and producers in the long term.
It remains to be seen how the new pricing system will affect the country’s gas industry, but the decision is likely to be welcomed by consumers and could help spur economic growth in the country.
