Government raises deepwater gas price ceiling to $9.89; APM cap stays $7

The government has notified a higher price ceiling for natural gas produced from difficult fields, setting it at $9.89 per million British thermal units (MMBtu) for the six-month period beginning October 1, 2026.

The revised ceiling applies to gas from deepwater, ultra-deepwater and high-pressure, high-temperature discoveries, while the ceiling for gas from the legacy fields of state-run Oil and Natural Gas Corporation (ONGC) and Oil India Limited (OIL) remains at $7 per MMBtu.

The new ceiling represents an increase from the earlier rate of $8.90 per MMBtu for gas produced from these difficult fields.

New ceiling applies through March 2027

According to a notification issued by the Petroleum Planning and Analysis Cell (PPAC) of the oil ministry, the revised ceiling will apply from October 1, 2026, to March 31, 2027.

Gas produced from deepwater, ultra-deepwater and high-pressure, high-temperature areas has marketing and pricing freedom under the government’s policy.

That freedom remains subject to a ceiling notified by the government, which means producers can operate with greater pricing flexibility but cannot exceed the prescribed limit.

The higher ceiling could provide some relief to producers developing India’s more technically challenging offshore gas resources, where production costs are generally higher than those associated with mature onshore and legacy fields.

Reliance Industries and its partner BP produce gas from the KG-D6 block in the Krishna-Godavari basin, which is one of India’s key deepwater gas-producing areas.

APM gas price remains capped at $7

The government has kept the ceiling for gas produced by ONGC and OIL from their legacy fields at $7 per MMBtu.

For gas produced by the two companies from their nomination fields, the government has notified an Administered Price Mechanism (APM) price of $11.22 per MMBtu for October.

However, according to PPAC, the actual price for this gas remains capped at $7 per MMBtu.

The APM gas price applies to gas produced from the legacy fields of the two state-owned companies.

This gas is used by priority sectors including city gas distribution, fertiliser and power.

For gas produced from new wells of ONGC and OIL in their nomination blocks, the government allows a 10% premium over the prevailing APM gas price, subject to the applicable ceiling.

With the APM price for October capped at $7 per MMBtu, the effective price for new-well gas would accordingly be up to $7.70 per MMBtu.

The higher price for new-well gas is intended to incentivise ONGC and OIL to invest in developing additional reserves and bringing new production on stream.

At the same time, the existing ceiling for gas from their older, legacy fields remains in place.

Separate pricing systems for different fields

India follows separate pricing mechanisms for gas from the legacy fields of national oil companies and for newer discoveries in difficult areas.

In April 2023, the government shifted the pricing of gas from legacy fields to a formula linked to 10% of the monthly average crude oil import price.

The formula is subject to both a floor and a ceiling.

The ceiling was initially fixed at $6.50 per MMBtu and was subsequently raised by $0.25 annually after a two-year freeze.

The APM ceiling rose to $6.75 per MMBtu from April 2025 and moved to $7 per MMBtu in April 2026.

Before the 2023 reform, APM gas prices were revised every six months based on international gas benchmarks.

Those prices had fluctuated sharply, ranging from $1.79 per MMBtu in 2021 to $8.57 per MMBtu in the six months ended March 2023.

The separate regime for deepwater and other difficult fields was introduced to encourage investment in India’s technically challenging hydrocarbon resources.

It does so by allowing producers greater pricing and marketing flexibility, while retaining a government-notified ceiling.

Impact on fertiliser, power and city gas

Natural gas is a key feedstock for fertiliser production and is also used in power generation.

City gas distributors use it to supply compressed natural gas (CNG) and piped natural gas (PNG).

Changes in domestic gas prices can therefore affect input costs across the fertiliser, power and city gas distribution sectors.

The latest notification raises the ceiling for gas from difficult fields while maintaining the $7 cap on gas from the legacy fields of ONGC and OIL.

It also keeps the separate pricing treatment for new-well gas from ONGC and OIL, for which the effective price can rise to $7.70 per MMBtu under the permitted premium and applicable ceiling.

Source: The Hindu