OilMin accepts all major Kirit Parikh panel recommendations on gas pricing

Source: The post is based on the article “OilMin accepts all major Kirit Parikh panel recommendations on gas pricing” published in Business Standard on 20th March 2023

What is the News?

The Petroleum and Natural Gas Ministry has accepted the main recommendations of the Kirit Parikh committee on natural gas pricing.

What is the Kirit Parikh committee?

The Kirit Parikh committee was constituted to review the existing pricing formula for domestically produced natural gas in the country.

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

What are the major recommendations given by the Kirit Parikh committee?

Firstly, move to a purely market-determined natural gas pricing system by 2027. Till then, institute a ceiling price of $6.5 MMBtu (metric million British thermal units) and a float price of $4 per MMBtu for domestic natural gas prices.

Secondly, domestic gas prices should be linked to 10% of the cost of crude oil imported into India.

Thirdly, prices of gas produced by state-owned firms should be linked to imported crude prices instead of benchmarking them to gas rates in international hubs.

Fourthly, no change in the pricing mechanism for gas produced from new and difficult fields. New and difficult fields enjoy pricing freedom to compensate for the greater risk and cost involved in these projects, but they have a pricing cap. The report suggests that the upper cap should be removed from January 1, 2026.

Lastly, City Gas Distribution (CGD) and fertilizer sectors will continue to get priority in gas allocation. Currently, CGD firms get about 90 percent of the gas allotted to priority sectors (CNG + PNG domestic).

What is the significance of Kirit Parikh committee recommendations?

The new pricing mechanism is expected to benefit domestic producers of natural gas in India, as they will now be able to receive a higher price for their products. This is expected to incentivize domestic production and lead to an increase in domestic supply.

It is also expected to make the pricing of natural gas more transparent and efficient, which will benefit consumers. As a result, the government would get a chance to raise the share of gas in India’s energy mix to 15% by 2030 from around 6.4% at present.