India raises deepwater gas ceiling price to $9.89 per MMBtu

The Indian government has increased the ceiling price for natural gas produced from challenging fields like the KG-D6 block of Reliance Industries and BP to $9.89 per million British thermal units (MMBtu) for the six months starting October 1, up from $8.90. This new rate applies to deepwater, ultra-deepwater, and high-pressure, high-temperature discoveries and will remain in effect until March 31, 2027.

For gas produced from legacy fields of state-run ONGC and Oil India Ltd, the government has kept the ceiling at $7 per MMBtu. However, the APM (Administered Price Mechanism) price for October is set at $11.22 per MMBtu, but the actual price remains capped at $7. For new wells in ONGC and Oil India’s nomination blocks, a 10% premium over the APM price is allowed, resulting in an effective price of up to $7.70 per MMBtu.

The higher price for new-well gas aims to incentivize investment in developing additional reserves while maintaining the existing ceiling for older legacy fields. India’s gas pricing mechanisms differ for legacy fields and newer difficult areas. The government shifted pricing for legacy fields in April 2023 to a formula linked to 10% of the monthly average crude oil import price, with a ceiling that has been gradually raised.

Natural gas is a key feedstock for sectors like fertilizer production, power generation, and city gas distribution. Changes in domestic gas prices can impact input costs across these industries. The separate regime for deepwater and other difficult fields was introduced to encourage investment in India’s technically challenging hydrocarbon resources by allowing producers greater pricing and marketing flexibility.