Kirit Parikh panel for price band to tame CNG, PNG spike – Times of India

NEW DELHI: A panel under economist Kirit Parikh is set to recommend a price band of $4-6.5 per unit for gas produced from old fields of state-run ONGC and OIL, which would ease pressure on city gas utilities as well as CNG and PNG consumers.
But the committee’s report, to be submitted on Wednesday, is unlikely to suggest any changes in the pricing formula for output from geologically difficult fields such as the Andhra offshore field operated by RIL-BP.
Sources said the panel will be recommending a five-year period for the price band with an annual escalation of about 50 cents per unit from the third year.
Gas from ONGC and OIL’s fields is currently priced at $8.5 per unit and from difficult fields more than $9 per unit. These prices are based on a formula benchmarked to rates in gas-surplus markets implemented in 2014.
This formula does not have either a floor or a ceiling and gas prices, which are revised every six months on April 1 and October 1, changes in accordance with the rise and fall in international markets.
As a result, domestic gas prices had last year gone down to $1.8 per unit, or less than half of the production cost from old fields, in line with the slide in international markets. Similarly, prices shot up to the current level, the highest-ever, reflecting the spike in global markets, hurting CNG and PNG consumers.
The proposed price band will tame such volatility and bring predictability for producers and protect CNG and PNG consumers from extreme price spikes.
A floor will ensure producers don’t suffer losses, while the cap will check windfall gains in case of the recent spike. Most of the city gas services run on gas from ONGC and OIL’s legacy fields. After the price spiked from $2.9 to $6.1 in April and further to $8.5 in October, city gas distributors had to raise rates of CNG and piped cooking gas by over 70%.

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