ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Pricing Domestic Natural Gas

Some Improvement, But Flaws Remain

The new formula for the pricing of natural gas produced in the country is an improvement on the Rangarajan formula. It corrects many of the computational flaws of the much-criticised approach of the previous government. However, there remain faults and there are conceptual flaws as well in the new formula, which if corrected should take the well-head price of gas to no more than $4.20 per million British thermal unit, rather than the price of $5.05 that has now been notified.

This article was earlier posted on the Web Exclusives section of EPW.

On 18 October 2014, the Narendra Modi government finally announced a new methodology for determining the well-head price for domestic gas produced in India. Within 10 days of announcing the new gas pricing formula, the government notified a price of $5.05 per million British thermal units (MMBTU), on a gross calorific value (GCV) basis, effective for the six-month period commencing 1 November 2014.

On a like-to-like comparison, based on the net calorific value (NCV), the new price would translate to about $5.55/MMBTU when compared to the prevailing well-head price of $4.20/MMBTU for most of the gas now produced in the country which for a few fields is also priced at $5.25/MMBTU. At the very outset, I would request the government to put the detailed working of the new price in the public domain to foster informed and research-based analysis and debate.

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