Govt raises price of domestic natural gas to $5.61 per mmBtu

The government on Saturday announced a new pricing formula that would raise the price of domestically-produced natural gas by 46 per cent to around $5.61 per million British thermal units (mmBtu) even as it deregulated diesel prices, bringing down retail prices of the popular fuel by Rs3.37 per litre.

The deregulation of diesel will bring down rates by Rs3.37 a litre from midnight tonight, and it will move in tandem with international cost from next month.

The Cabinet Committee of Economic Affairs, chaired by Prime Minister Narendra Modi, approved the new domestic gas pricing policy, which is likely to push up fertiliser, power, CNG and PNG rates.

Finance minister Arun Jaitley said the price of gas will go up to $5.61 per mmBtu on gross calorific value (GCV) basis, beginning 1 November.

But, since the current price of $4.2 per mmBtu is on net calorific value (NCV) basis, the actual coast to the buyer under the revised formula would be 10 per cent more, which works out to $6.17 per mmBtu.

The revised pricing formula removes both the Japanese and Indian LNG import components from the formula recommended by the earlier Rangarajan committee and takes the Alberta gas price in place of the Henry Hub gas price as reference price for Canadian consumption.

The revised formula benchmarks the actual price of Russian natural gas in place of the National Balancing Point price of the former Soviet Union countries.

Besides, it considers appropriate deductions on account of transportation and treatment charges, etc, for different hub prices and opts for bi-annual and annual price revisions rather than quarterly revisions.

The committee of secretaries also recommended applicability of the modified approach prospectively and to apply it uniformly to all sectors of the economy, along with prevailing gas allocation policy of the government.

The committee was of the view that the national oil companies (NOCs) may also get the same price as determined under the proposed dispensation, including the gas from the nomination fields. In addition, the committee also drew attention to the fact that although in India gas is historically being priced on national calorific value (NCV), the input prices being used in the Rangarajan formula are based on gross calorific value (GCV).

Under the pricing formula approved by the CCEA, gas price is proposed to be determined as per the following formula:




  1. VHH = Total annual volume of natural gas consumed in USA and Mexico;
  2. VAC = Total annual volume of natural gas consumed in Canada;
  3. VNBP = Total annual volume of natural gas consumed in EU and FSU, excluding Russia;
  4. VR = Total annual volume of natural gas consumed in Russia;
  5. PHH and PNBP are the annual average of daily prices at Henry Hub (HH) and National Balancing Point (NBP) less the transportation and treatment charges; and
  6. PAC and PR are the annual average of monthly prices at Alberta Hub and Russia, respectively less the transportation and treatment charges.

The periodicity of price determination/notification would be half yearly. The price and volume data used for calculation of applicable price will be the trailing four quarter data with one quarter lag. The first price would be determined on the basis of price prevailing between 1 July 2013 and 30 June 2014. This price would come into effect from 1 November 2014 and would be valid till 31 March 2015.  Thereafter, it would be revised for the period 1 April 2015 to 30 September 2015 on the basis of prices prevalent between 1 January 2014 and 31 December 2014, ie, with the lag of a quarter and so on. The prices would be announced 15 days in advance of the half year, for which it is applicable.

The price so notified would be applied prospectively with effect from 1 November 2014 and would be on GCV basis as input prices in the formula are on GCV basis.

The revised gas price, so determined would be applicable to all gas produced from nomination fields given to ONGC and OIL India, NELP blocks, such pre-NELP blocks where PSC provides for government approval of gas prices and CBM blocks. 

However, for small and isolated fields in nomination blocks, given their peculiar conditions, guidelines for pricing of gas issued in 2013 would continue to apply.

Where prices have been fixed contractually for a certain period of time, this would continue till the end of such period.

The old pricing formula would continue in cases where the PSC provides a specific formula for natural gas price indexation/fixation.

The new pricing formula will also not apply to such pre-NELP blocks where government approval has not been provided under the production sharing contract (PSC).

The matter relating to cost recovery on account of shortfall in envisaged production from D1, D3 discoveries of Block KG-DWN-98-3 is under arbitration.  Hence the operator would be paid the earlier price of $4.2/MMBTU till the shortfall quantity of gas is made good. It is proposed that the difference between the revised price and the present price ($4.2 per million BTU) would be credited to the gas pool account maintained by GAIL and whether the amount so collected is payable or not, to the contractors of this block, would be dependent on the outcome of the award of pending arbitration and any attendant legal proceedings.

For all discoveries after this decision, in ultra deep water areas, deep water areas and high pressure-high temperature areas, a premium would be given on the gas price to be determined as per the prescribed procedure.

In the NER region, the 40 per cent subsidy would continue to be available for gas supplied by ONGC/OIL. However, as private operators are also likely to start production of gas in NER, and would be operating in the same market, this subsidy should also be available to them to incentivise exploration and production.

As per the formulation approved by the CCEA, upward revision in gas prices will be approximately 75 per cent less as compared to the price arrived at using Rangarajan formula.

Approximately 80 per cent of the additional revenue due to revision in gas price will go to the government companies.

Government will get additional revenue of approximately Rs3,800 crore per annum on account of higher royalty, higher profit petroleum and higher taxes.

After the new government took over, a decision was taken to defer domestic natural gas pricing guidelines 2014 and to get the matter re-examined. For this purpose, a committee which included secretaries of the ministries/departments of power, expenditure and fertiliser as members with additional secretary, ministry of petroleum and natural gas, as member secretary was appointed.

The CCEA, chaired by the Prime Minister Narendra Modi, on Saturday approved the proposal of petroleum ministry regarding ''Policy framework for relaxations, extensions and clarifications at the development and production stage under PSC regime for early monetization of hydrocarbon discoveries''. There is a reform initiatives which would help in monetisation of some of the pending discoveries, lead to resolution of various long pending operational issues which are hampering E&P operations and create better climate for investment.