The price cap on domestically produced gas from the nominated fields of ONGC and Oil India is expected to lower the ballooning subsidy burden of the Modi government in the current fiscal. Finance minister Nirmala Sitharaman in the budget for FY2023-24 has earmarked Rs 1.75 lakh crore on fertiliser subsidy, significantly lower than the Rs 2.25 lakh crore subsidy in the revised estimates for the last fiscal.
The government in the 2022-23 budget allocated Rs 1.05 lakh crore for fertiliser subsidy, but geopolitical factors including the Russia-Ukraine war spiked natural gas prices.
Since natural gas accounts for 80 per cent of the production cost of urea, the fertiliser subsidy increased. However, with the new gas price policy approved by the Cabinet, the prices would be within a band and stable.
The Cabinet has approved a floor price of $4 per mBtu for APM (Administered Pricing Mechanism) gas and a ceiling of $6.5 per mBtu against current rate of $8.57. Rates will be decided every month instead of current practice of bi-annual revision. The notification issued on Friday said “the Domestic Natural Gas Price (APM price) shall be 10 per cent of the Indian Crude Basket Price as defined by Petroleum Planning and Analysis Cell (PPAC) from time to time”.
APM gas prices have seen wide fluctuations over the years, from a low of $1.79 per mBtu in 2021 to a high of $8.57 for the six-month period ending March 2023. Global gas prices have been even more volatile, exacerbated by the ongoing Russia-Ukraine conflict. Naveen Vaidyanathan, director, Crisil Ratings, said: “The APM prices declining to $6.5/mBtu could mean a 9-11 per cent cut in CNG and PNG prices, assuming companies pass on the benefit to end-consumers.”
“In contrast, as per the earlier APM regime, gas prices could have risen further to $10-11/mBtu for the first half of fiscal 2024 from $8.57/ mBtu for the six months ended March 2023, necessitating a price increase, in turn, for city gas distributors to maintain profitability.”
Data showed that the country consumes 59.5 billion cubic metres (bcm) of natural gas annually.
