Rationalisation and Reform for a Gas-based Economy
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SHRI HARDEEP S PURI
- Comments 0
- 04 May 2023
Modi government has been taking various measures to protect Indian consumers from international oil and gas price volatility. Despite a staggering increase of 228% in international gas prices between January 2021 and February 2023, increase in CNG prices in India have been restricted to 83%– only about a third of the global increase. Politically motivated naysayers, in their haste to criticise rising prices, fail to see how well India has done to shield its citizens from extreme price volatility in comparison to other major economies.
Farsighted governance through proactive measures such as increasing domestic Administered Price Mechanism (APM) gas allocation and diverting gas from non-priority sectors to transport and domestic segments has made this possible. The recent Cabinet decision to approve a series of critical APM gas pricing reforms will further advance this objective. These reforms achieve two major goals – first, to protect Indians from extreme price volatility and to provide clarity for planned capex investments in gas-based sectors; and second, to promote more innovation and investments in Exploration and Production (E&P).
The need for this set of rationalisation and reforms (R&R) arose from the limitations of the New Domestic Gas Pricing Guidelines, 2014, which, until recently, determined APM prices based on the volume-weighted average price of gas at four international hubs. The transmission of these prices came with a significant time lag (6-9 months) and contained high volatility even as two producer countries’ gas hub prices had lost their relevance in the last few years.
For instance, the APM price between October 2020 and September 2021 remained $1.79/MMBTU, much below the marginal cost of production of $3.5/MMBTU for nomination fields. During this period, LNG prices in west India averaged about $11/MMBTU. In essence, domestic production fetched a price less than 20% of the LNG prices. However, the same APM prices jumped from $1.79/MMBTU in September 2021 to $8.57/MMBTU in October 2022 due to a 400% price surge in international hub prices after the Russia-Ukraine crisis, bringing tremendous distress to the fertiliser, power and City Gas Distribution (CGD) sectors.
The government decided to insulate domestic gas consumers as well as national oil c
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