How India Prices Natural Gas

How the government sets the price of domestic natural gas using formulas, the 2023 link to crude oil prices, and the tension between producers and consumers.

The government sets the price of much of India’s domestic natural gas.

The problem

Producers want high prices to justify exploration.
Consumers like fertiliser plants, power stations and city gas want low prices.

Formula pricing

From 2014, prices were based on international gas benchmarks.
In April 2023, the government linked domestic gas prices to 10 percent of the Indian crude basket price, with a floor and ceiling for older fields.

Difficult fields

Gas from deepwater and high-pressure fields gets higher prices to encourage production.

Allocation

Domestic gas is prioritised for city gas (households and CNG) and fertilisers.

Reliance KG-D6

The KG-D6 gas field off Andhra Pradesh, operated by Reliance, became a focus of pricing disputes in the 2010s.

Economic view

Price controls balance consumers and producers but can discourage investment if too low.

The price formula

When crude prices rise, the formula raises domestic gas prices, but the ceiling limits the increase for consumers.

Thinking gas prices are set by markets alone

The government sets domestic gas prices using formulas.

Key takeaways

The government sets domestic gas prices.
From 2023, prices link to 10 percent of the crude basket.
Difficult fields get higher prices.
Low prices can discourage investment.