The Cabinet Committee on Economic Affairs (CCEA) on Thursday approved the revised domestic natural gas pricing guidelines for gas produced from nomination fields of state-run ONGC and OIL, New Exploration Licensing Policy (NELP) blocks and pre-NELP blocks, where Production Sharing Contract (PSC) provides for government’s approval of prices.

“The price of such natural gas shall be 10 per cent of the monthly average of Indian crude basket and shall be notified on a monthly basis. For the gas produced by ONGC and Oil India from their nomination blocks, Administered Price Mechanism (APM), price shall be subject to a floor and a ceiling,” a government statement said.

Gas produced from new wells or well interventions in the nomination fields of ONGC and OIL, would be allowed a premium of 20 per cent over the APM price, it added.

Floor and ceiling price to go up by 25 cents per year after two years.

“The new guidelines are intended to ensure a stable pricing regime for domestic gas consumers while at the same time providing adequate protection to producers from adverse market fluctuation with incentives for enhancing production,” the government said.

Last year, the Kirit Parikh committee on fair pricing of natural gas had recommended the price from old fields will be fixed at 10 per cent of the monthly average of India’s crude oil basket. Besides, this price will also have a floor of $4 per mBtu and a ceiling of $6.5 per mBtu.

The reforms will lead to significant decrease in prices of Piped Natural Gas (PNG) for households and Compressed Natural Gas (CNG) for transport. The reduced prices shall also lower the fertilizer subsidy burden and help the domestic power sector, the government said.

With the provision of a floor in gas prices and provision for 20 per cent premium for new wells, this reform will incentivise ONGC and OIL to make additional long-term investments in the upstream sector leading to greater production of natural gas and consequent reduction in import dependence of fossil fuels. The revised pricing guidelines will also promote lower carbon footprint through the growth of gas-based economy, it added.