India panel to favour linking local gas prices to local crude basket -sources

By Nidhi Verma

NEW DELHI (Reuters) - The panel reviewing natural gas prices in India is set to recommend linking the price of most local output to an Indian crude basket, and also suggest a price cap that would be about 25% lower than current rates, industry sources told Reuters.

The panel, which is likely to submit its report to the oil ministry as early as Tuesday, could also suggest a road map to end the government's role in gas pricing from 2026, said the sources, who are familiar with the content of the report but who declined to be named because they are not authorised to speak to the media.

"The aim is to protect consumers and at the same time incentivise producers to boost output," one of the sources said.

There was no immediate comment from the oil ministry. The panel's recommendations need cabinet approval.

In September, India set up the panel, headed by energy expert Kirit Parikh, to review the gas pricing formula to ensure fair prices to consumers after state-set prices of gas from old fields and a ceiling price for output from hard-to-access, difficult blocks rose to a record high.

India fixes prices of gas produced from the old fields of state-run Oil and Natural Gas Corp and Oil India Ltd and sets a ceiling price for output from difficult production areas such as Reliance Industries' east coast block.

The two sets of prices - tied to global benchmarks, including Henry Hub, Alberta gas, NBP and Russian gas - are annually revised in April and October. Old fields account for about 80% of India's annual gas output of about 91 billion cubic metres.

For gas output from old fields, the report suggests a monthly revision in prices on the basis of 10% of the previous month's average price for Indian Crude Basket, consisting mostly of 75% average of Oman and Dubai crudes and 25% of dated Brent.

The panel is also expected to recommend a floor of about $4 per million British thermal units (mmBtu) and a ceiling of

$6.50/mmBtu, the sources said. The panel is likely to suggest an annual increment of $0.50 mmBtu in the ceiling price of the gas produced from the old fields, the sources said.

The draft report did not recommend any changes to the current ceiling price mechanism for gas output from difficult areas and suggested forming another group to look into this matter, the sources added.

A surge in global energy prices triggered by the Ukraine-Russia conflict has affected India, stoking inflation and pushing up rates for consumers from households to industries.

The move to overhaul gas pricing is also part of Prime Minister Narendra Modi's aim to raise the share of gas in India's energy mix to 15% by 2030 from 6.2%, to help India meet a 2070 net zero carbon-emission goal.

(Reporting by Nidhi Verma; Editing by Tom Hogue and Kenneth Maxwell and Miral Fahmy)