KIRIT PARIKH

Govt, has accepted recommendations:

Govt. has approved partial but significant changes in line with the kirit parikh committee regarding the pricing mechanism for domestic natural gas under the ambit of the administered price mechanism (APM), which mainly applies to gas produced by legacy fields, or nomination fields, of national oil companies Oil and Natural Gas Corporation (ONGC) Ltd and Oil India Ltd (OIL).

What are legacy or Nomination fields?

• They are oil and gas fields, that the government awarded to ONGC and OIL before 1999, after which auctions became the basis of awarding oil and gas blocks.
• The price of APM gas, which accounts for about two-thirds of India’s natural gas production, has been determined as per the ‘modified’ Rangarajan formula since November 1, 2014. Prior to NDA govt. coming to power the pricing formulae was slightly different.
• APM gas is exclusively used for domestic consumers, fertilizer producers & city gas scompanies.

 

What  recommendations of kirit parekh committee not accepted?

• No change in pricing formula for gas from difficult blocks

The changes in pricing formula for domestic APM gas do not apply to gas production from difficult acreages — deep water, ultra-deep water, high-temperature, and high-pressure fields. A pricing regime for gas from difficult blocks — such as Reliance Industries and BP’s KG-D6 and ONGC’s KG-DWN-98/2 — was introduced in 2016, which allowed marketing and pricing freedom subject to a ceiling price. The revision in ceiling price for difficult fields was done every six months along with APM gas price revision.

• panel’s recommendation on hiking the ceiling every year was tweaked. The Parikh panel had recommended raising the ceiling by 50 cents per year, but the government decided to keep the annual increment at 25 cents. Also, the government decided to start hiking the ceiling price after two years.
• The Parikh panel had recommended that APM gas prices be made market-determined by 2027. However, the details of the new pricing regime shared by the government does not have any mention of deregulation of APM gas prices.

What was the need for kirit parikh committee?

 

Between October 220 to October 2022 the international gas prices rose from $1.79/ mBtu  to$ 8.57/mBtu forcing demand from stakeholders to rationalize prices leading to formation of kirit parikh committee.

• Over the past few years, ONGC and OIL had been petitioning the government for a floor price as they were forced to sell gas at a loss for a prolonged period when prices sustained below their cost of production.
• On the other hand, gas consuming industries had been urging the government to ensure affordability of domestic natural gas. The new pricing formula attempts to balance demands of consumers as well as producers.
• As per estimates, the price of APM gas as per the modified Rangarajan formula would have risen to over $10.5/ mBtu for the six months starting April.
• The Petroleum Planning & Analysis Cell (PPAC) of the Ministry of Petroleum & Natural Gas notified $7.92 per mBtu as the price of domestic natural gas as per the revised formula for the remainder of April, 2023. As per PPAC data, the average price of the Indian crude basket in March was $78.54 per barrel. However, ONGC and OIL will get $6.5 per mBtu.
• Gas produced from ONGC and OIL’s nomination fields will have a floor price of $4/ mBtu and a ceiling of $6.5/ mBtu. This means that the two companies will get a minimum of $4/ mBtu even if the gas price as per the formula falls to a lower level.
• Similarly, no matter how high the formula-based price goes, the maximum price they can realise for APM gas will be $6.5/ mBtu.

 

Why gas prices have risen so much in recent times?

In the international market the prices Between October 220 to October 2022 the gas prices rose from $1.79/ mBtu  to$ 8.57/mBtu forcing demand from stakeholders to rationalize prices leading to formation of kirit parikh committee.

 

Existing pricing mechanism:

• Key changes in the pricing regime, will benchmark the price of APM gas to the price of imported crude instead of gas prices in four international gas trading hubs, and monthly, rather than biannual revisions in prices.

 

What was wrong with Existing pricing mechanism?

• Over the past few years, ONGC and OIL had been petitioning the government for a floor price as they were forced to sell gas at a loss for a prolonged period when prices sustained below their cost of production.
• On the other hand, gas consuming industries had been urging the government to ensure affordability of domestic natural gas. The new pricing formula attempts to balance demands of consumers as well as producers.