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OilMin accepts all major Kirit Parikh panel recommendations on gas pricing

GS Paper 3

Syllabus: Economy: Energy

 

Source: BS

Context:  The Petroleum and Natural Gas Ministry has accepted the main recommendations of the Kirit Parikh committee on natural gas pricing, and will be further recommended by them to the Cabinet soon

 

What is the Kirit Parikh committee?

The committee was constituted last year (2022) to review the existing pricing formula for domestically produced natural gas in India.

 

The current method of gas pricing:

At present, the government fixes the prices of gas produced from the old fields of state-run ONGC and OIL (these both account for about 80% of the annual gas output of 91 billion cubic metres in India)

 

Need for revision of Gas Pricing?

  • To ensure a reliable pricing regime: A price band will ensure a predictable pricing regime for producers and protect consumers by moderating CNG and PNG price spikes.
  • To raise domestic production: A better price will incentivise more investment and help raise domestic production (India targets 15% of energy coming from gas by 2030)
  • Helps in improving the environment– dependence on coal and oil needs to be reduced
Major Recommendations of the Committee Description
Fixed Ceiling price (till 2027) ·        Implement a fixed pricing band for APM (Administrative Price Mechanism) gas from old fields

·        The old fields account for two-thirds of natural gas produced in India

·        Currently, government controls the price of Gas produced from old fields

By 2027 ·        Move to a purely market-determined natural gas pricing system by 2027
Linking the price ·        Link the domestic gas price to 10% of the cost of imported crude oil
No-cut category (uninterrupted supply) ·        Some of the sectors have been kept in the ‘no-cut’ category (meaning that supplies will remain uninterrupted in this category even in case of a decline in production)

·        E.g., The city gas and fertilizer sector will continue to get top priority in the allocation of APM gas.

Inclusion of gas in GST ·        Include gas in GST with compensation for five years
Removal of caps on gas prices ·        Remove caps on gas prices within three years.
Gradual exit from gas allocation business ·        Government should gradually exit out of the gas allocation business.
No changes to the existing pricing formula for new fields and fields with difficult geology ·        New and difficult fields enjoy pricing freedom to compensate for the greater risk and cost involved in these projects, but they have a pricing cap.

·        The report suggests that the upper cap should be removed from January 1, 2026.

·        E.g., for fields in the Deep sea or in high-temperature, high-pressure zones.

 

Impact of the move:

  • Good for domestic producers: It will benefit domestic producers of natural gas in India, as they will now be able to receive a higher price for their products.
  • Will incentivize domestic production and lead to an increase in domestic supply.
  • Will make the pricing of natural gas more transparent and efficient
  • This will help raise the share of gas in India’s energy mix to 15% by 2030 from around 4% at present.

 

About Administrative Price Mechanism (APM):

To prevent hoarding, maintain the prices of essential goods (such as Gas) at reasonable levels, and ensure their easy availability, the government fixes the prices of certain commodities. This is known as the administered price mechanism.

 

About natural gas:

Natural gas, also called methane gas or natural methane gas, is a colourless highly flammable gaseous hydrocarbon consisting primarily of methane and ethane. It is a type of petroleum that commonly occurs in association with crude oil. It can be used as a domestic and industrial fuel.

 

Insta Links:

 

Mains Link:

Will natural gas be the game-changer in India’s energy future? Discuss. (150 Words)

  

Prelims Link:

In India, in the overall Index of Industrial Production, the Indices of Eight Core Industries have a combined weight of 37.90%. Which of the following is among those Eight Core Industries? (UPSC 2012)

  1. Cement
  2. Fertilizers
  3. Natural Gas
  4. Refinery products
  5. Textiles

Select the correct answer using the codes given below

(a) 1 and 5 only

(b) 2, 3 and 4 only

(c) 1, 2, 3 and 4 only

(d) 1, 2, 3, 4 and 5

Solution: C

The index of eight core industries measures combined and individual performance of production in selected industries namely coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity.