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Valve opens wider for city gas distribution companies
The city gas distribution (CGD) sector has received a shot in the arm from the government’s enactment of the Kirit Parikh committee’s recommendations. The government had set up the committee to review the pricing formula for natural gas produced in the country as global energy prices soared.
The ceiling of $6.5/MMBtu and floor of $4/MMBtu for domestic natural gas prices will facilitate the government’s agenda to promote CGD and, thus, increase national acceptance of natural gas.
Without the ceiling, which will be maintained for fiscals 2024 and 2025 and then increased by $0.25/million British thermal unit (MMBtu) each year, the price would have been $10-11/MMBtu for the first half of fiscal 2024, based on the existing formula
Moreover, benchmarking of prices of gas produced by state-owned firms against 10% of imported crude prices — instead of against Henry Hub (the US and Mexico), Alberta (Canada), National Balancing Point (European Union) and Russian natural gas prices — coupled with monthly price revisions from bi-annual revisions will ensure stable domestic gas prices and will help ensure gas prices keep pace with market realities, addressing a historical weakness within the sector.
Gas produced from new well or well intervention in the nomination fields of ONGC and OIL, where Administered Pricing Mechanism (APM) prices are subject to floor and ceiling, would be allowed a premium of 20% on these APM prices. This would incentivise investments in this space.
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