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Changes in the domestic gas pricing formula

Facts for Prelims (FFP)

Source: IE

 Context: Union Cabinet has changed the pricing regime for domestic natural gas under the ambit of the administered price mechanism (APM)


About APM:

  • APM applies to the pricing of gas produced by legacy fields (old Oil fields awarded to ONGC and OIL before 1999, when auctioning started)
  • APM gas accounts for about two-thirds of India’s natural gas production,


CriteriaOld Pricing SystemNew Pricing System
ApplicationAPM gas fieldsNomination fields of ONGC/OIL. New Exploration Licensing Policy (NELP) and Pre-NELP Block
Pricing Formula‘Modified’ Rangarajan formula since November 1, 2014Indexation to the price of imported crude oil
Price Determination FrequencyQuarterlyMonthly
Price CalculationBased on the cost of production, returns, and a notional price of imported LNG10% of the monthly average of the Indian crude basket
Price Ceiling and FloorNo floor or ceilingSubjected to a floor and ceiling price that remains unchanged for 2 years
The premium for Gas from New WellsNo premium allowed20% over APM price for gas produced from new fields


Advantages: The new pricing formula will help stabilize the prices of gas, encourage investment into the Gas based economy, help reduce prices of fertilizers, help reduce the government’s subsidy burden


For Kirit Parikh’s panel recommendations on gas pricing: Click here