Government’s decision to grant a 20 per cent premium on natural gas from the state owned new wells has added complexity to the gas pricing regime
The decision of the Union Government to grant a 20 per cent premium over the APM price (a jargon for administered or controlled price) for any natural gas (NG) that state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) will produce from the ‘new wells or well interventions’ from their nominated fields has made the NG pricing more complicated. It is an outcome of a thought process that focuses on unshackling the oil and gas industry from price controls to start with but ends up exercising more controls.
Every year, India consumes 59.5 billion cubic metres (bcm) of NG. Of this, nearly 54 per cent or 32.13 bcm is produced domestically, and the balance is met from imports of liquefied natural gas (LNG). Of the domestic gas, around two-thirds is from blocks given on nomination to ONGC and OIL and from fields given under the New Exploration and Licensing Policy (NELP) (launched in 1999) as well as those given to private firms before the NELP. NG supplies from the aforementioned fields (known in common parlance as ‘legacy fields’) are governed by a particular pricing regime. Before April 2023, under the pricing guidelines effective since November 2014, supplies from these fields used to be a weighted average (WA) of prices of NG at four international locations: Henry Hub (the USA), Alberta Gas (Canada), NBP (National Balancing Point) (the UK), and Russian Gas. The prices used for arriving at the WA were over twelve months. It was revised every six months in a financial year (FY).