India consumes 59.5 billion cubic metres (bcm) of NG annually. Nearly 54% of this is produced domestically, and the balance is imported. The decision of the Union Government to grant a 20 per cent premium over the price determined by the Administered Price Mechanism for any natural gas that state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) will produce from the ‘new wells’ or ‘well interventions’ from their nominated fields has made the NG pricing murkier. India consumes 59.5 billion cubic metres (bcm) of NG annually. Nearly 54 per cent of this is produced domestically, and the balance is imported. Of the domestic gas, around two-thirds is from the so-called ‘legacy fields’; those include fields given...
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Category: Pricing Policies & Subsidies
Gas pricing: Reforms turn into a control regime
Government’s decision to grant a 20 per cent premium on natural gas from the state owned new wells has added complexity to the gas pricing regime The decision of the Union Government to grant a 20 per cent premium over the APM price (a jargon for administered or controlled price) for any natural gas (NG) that state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) will produce from the ‘new wells or well interventions’ from their nominated fields has made the NG pricing more complicated. It is an outcome of a thought process that focuses on unshackling the oil and gas industry from price controls to start with but ends up exercising more controls. Every year, India...
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G7 sanctions slip through the cracks
Russia is the third-largest producer of crude oil, with over 12 per cent of global crude production, and the second-largest exporter after Saudi Arabia. An oil and gas industry worker walks during operations of a drilling rig at Zhetybay field in the Mangystau region, Kazakhstan. Credit: Reuters Photo The reports of the US Treasury Department imposing sanctions on two ship owners in October 2023 for allegedly transporting Russian oil at $75 and $80 per barrel, while relying on US-connected service providers, demonstrate a feeble attempt to achieve the lofty goal set by the G7 in mid-2022. The group, consisting of the United States, Germany, France, Britain, Italy, Canada, and Japan, aimed to punish Russia for its military actions against Ukraine by...
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Sanctions on Russia are counterproductive
In a globally interdependent world, actions that severely restrict the flow of goods and services across national boundaries are bound to be counter-productive In a bid to punish Russia for its military action against Ukraine, in June 2022, leaders of G7 viz., the United States, Germany, France, Britain, Italy, Canada and Japan had vowed to explore the feasibility of measures to bar imports of Russian oil at price above a certain level. In September 2022, their finance ministers (FMs) said: “We confirm our joint political intention to finalise and implement a comprehensive prohibition of services, which enable maritime transportation of Russian-origin crude oil and petroleum products globally. Providing those services would only be allowed if the oil and petroleum products...
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LPG subsidy will hurt the exchequer
The price cut especially for non-ujjwala beneficiaries was avoidable. It will serve no purpose and will be a drain on already strained oil companies For several decades, it has been a common practice for governments to make decisions based on political expediency ignoring economic considerations. The incumbent Modi – dispensation has tried to change this practice but he too has fallen back to business as usual. One such area is the LPG subsidy. On August 29, 2023, the Union Cabinet approved a reduction in the price of domestic cooking gas by Rs 200 per cylinder (14.2 kg) effective from August 30, 2023. De jure, the price of LPG is deregulated. How could the government decide on it? The reason is...
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New gas pipeline tariff is flawed
There is no harm in helping areas at a locational disadvantage. But the problem arises when it is done using the tariff mechanism Under the zone-wise unified tariff for natural gas (NG) pipelines effective from April 1, 2023, and announced by the downstream regulator Petroleum and Natural Gas Regulatory Board (PNGRB), consumers will pay a uniform charge for transportation of NG within a tariff zone irrespective of their location. There are three tariff zones defined as per the distance from the gas source — up to 300 km, 300-1,200 km and greater than 1,200 km. This is a drastic shift from the extant system of tariff determination under which they pay different tariffs depending on the pipeline operator with whom they...
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Has the government shelved reforms in gas pricing?
The revision of the gas pricing formula is in line with the recommendations of the Kirit Parikh committee but the government is silent on deregulating prices from 2027 The shift to link the price of natural gas with the crude oil price is unwarranted as natural gas is not a replacement for crude oil. The government made two significant changes in the revised pricing policy for domestic natural gas produced from legacy fields. One, it linked the price of natural gas to the basket of Indian crude oil instead gas prices at global hubs. Two, it introduced the concept of a price band. Legacy fields are nomination fields, blocks given under New Exploration Licensing Policy (NELP) and pre-NELP blocks. It...
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Banish those thoughts of LPG subsidy ending in the near term
LPG subsidy is here to stay notwithstanding proclamations by successive governments to end it. This is because actions on the ground are driven by populism, not economics Subsidy on LPG is the excess of its cost of supply over the price paid by the beneficiary. (Representative image) In the Union Budget for 2023-24, finance minister Nirmala Sitharaman has kept the budget estimate (BE) for petroleum subsidy – primarily subsidy on liquefied petroleum gas (LPG) for household consumption – for 2023-24 at a mere Rs 2,257 crore. The subsidy on the purchase of a product is a financial assistance given by the state to persons who cannot afford to pay the market-based or cost-plus price. Subsidy on LPG is the excess...
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Exit from LPG subsidy, completely
In June 2020, the Government stopped giving LPG subsidies. It is time to do away with the hidden subsidy on the cylinder for better fiscal management In the Union Budget for 2023-24, finance minister Nirmala Sitharaman has shown an expenditure of Rs 9,170 crore on petroleum subsidy (this is primarily a subsidy on LPG for household consumption) during 2022-23 as per the revised estimates (RE). She has kept the budget estimate (BE) for 2023-24 at Rs 2,257.09 crore. By definition, a subsidy on the purchase of any given product is financial assistance given by the state to a certain class of persons who cannot afford to pay the market-based or cost-plus price from their limited income. Subsidy on LPG is...
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Cap natural gas prices to control rising fertiliser subsidy
The government should continue with the extant formula for the pricing of natural gas as per November 2014 guidelines The pricing of domestic gas presents a mix of administrative control and market forces. A major reason why fertiliser subsidy zoomed to Rs 2.25 lakh crore in the revised estimate (RE) of 2022-23 against the budget estimate (BE) of Rs 1.05 lakh crore was the sharp increase in the price of natural gas, which accounts for over 80 percent of the production cost of urea. Almost all manufacturing of urea in India is based on natural gas. India consumes 59.5 billion cubic metres (bcm) of natural gas annually. Of this, nearly 54 percent, or 32.13 bcm, is produced domestically, and...
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