The central government has announced a 4% hike in the price of natural gas derived from old legacy fields, known as the Administered Price Mechanism (APM). As per the notification released by the Petroleum Planning and Analysis Cell (PPAC) of the Oil Ministry, the APM gas price has been increased to USD 6.75 per million British thermal units (MMBtu) from the previous rate of USD 6.50 per MMBtu. This new pricing structure is effective from April 1, which is expected to impact CNG prices, electricity generation, and fertiliser production in the country.
The natural gas under the APM system is primarily produced by state-owned entities such as Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) from fields that were allocated to them on a nomination basis. This gas serves as a crucial input for producing CNG, generating electricity, manufacturing fertilisers, and even supplying cooking gas to households through piped connections.
This adjustment marks the first increase in APM gas pricing in two years and aligns with the government's roadmap for price revision. Industry experts anticipate that the price hike could influence downstream sectors, potentially raising the cost of CNG and impacting the overall energy and fertiliser markets.
Price hike aligned with 2023 cabinet decision
In April 2023, the Union Cabinet accepted an expert committee report to price the bulk of domestically produced natural gas at 10 per cent of the monthly average import price of crude oil with a floor of USD 4 per million British thermal unit and a cap of USD 6.5. In doing so, the government had tinkered with the recommendation of a USD 0.50 per mmBtu annual increase till full deregulation in 2027. The Cabinet decided that rates will not change for two years and will be increased by USD 0.25 annually thereafter. The hike announced on Monday is in line with that decision.
Petroleum Planning and Analysis Cell (PPAC) said the APM gas price for April 1 to April 30, 2025, should have been USD 7.26 per MMBtu, going by the 10 per cent indexation to the crude oil price. But this was subject to the ceiling price. The ceiling price has been raised from USD 6.50 per MMBtu to USD 6.75. This ceiling will be effective from April 2025 to March 2026 and will rise by another USD 0.25 per MMBtu in April next year.
APM Gas pricing: From semi-annual to monthly revision
Prior to April 2023, the price of gas produced from fields covered under the Administered Price Mechanism (APM) regime -- which accounts for 70 per cent of domestic gas production -- was determined semi-annually based on a formula that benchmarked it to average international prices at four gas trading hubs.
APM gas is provided to city gas distributors for supply to CNG and residential PNG segments, which together account for 60 per cent of their sales volume. Subsequent to the April 2023 decision, APM gas prices are revised on a monthly basis but are subject to ceiling and floor prices. The ceiling price now is USD 6.75 per MMBtu. APM gas prices had seen wide fluctuations in the years running up to the April 2023 decision. From a low of USD 1.79 per mmBtu in 2021 to a high of USD 8.57 for the 6-month period ending March 2023.
As per the key recommendation of the committee accepted by the government, the APM formula is now revised and determined as a 10 per cent slope to crude oil prices, but with a floor and ceiling price of USD 4 per mmBtu and USD 6.5, respectively. Two different formulas govern rates paid for gas produced from legacy or old fields of national oil companies like ONGC and OIL and for newer fields lying in difficult-to-tap areas like deepsea. The rate for difficult fields like KG-D6 of Reliance Industries has been set at USD 10.04 per MMBtu for six months beginning April 1 compared to USD 10.16 in the preceding six-month period, according to PPAC.
(With PTI inputs)
ALSO READ: LPG commercial cylinder prices slashed by Rs 41 from today | Check revised rates here
