Editorial 1. Changes in domestic gas pricing formula: Math, rationale, and how consumers are affected
Recent Context:
- Recently, The Union Cabinet approved significant changes in the pricing regime for domestic natural gas under the ambit of the administered price mechanism (APM), which mainly applies to gas produced by legacy fields, or nomination fields, of national oil companies Oil and Natural Gas Corporation (ONGC) Ltd and Oil India Ltd (OIL).
- Nomination fields are acreages that the government awarded to ONGC and OIL before 1999, after which auctions became the basis of awarding oil and gas blocks.
- The price of APM gas, which accounts for about two-thirds of India’s natural gas production, has been determined as per the ‘modified’ Rangarajan formula since November 1, 2014.
- As, the revised pricing mechanism is based on recommendations of a panel headed by Kirit Parikh.
- The panel was constituted last year to delve into the extant gas pricing guidelines and recommend changes to balance the interests of gas consumers and producers, while also helping India achieve its aim of increasing domestic gas output and substantially increasing the share of natural gas in the country’s energy mix.
Key changes in the revised pricing regimes and its outcomes:
- Benchmarking the price of APM gas to the price of imported crude instead of gas prices in four international gas trading hubs, and monthly, rather than biannual revisions in prices.
- The new pricing regime also provides for floor and ceiling prices — $4 and $6.5 per million British thermal units (mBtu), respectively for ONGC and OIL’s APM gas with the intention of shielding consumers from high prices while ensuring that the producers are not forced to book losses on gas sales.
- The government expects the new pricing system to result in significant reduction in the retail price of piped natural gas (PNG) for households and compressed natural gas (CNG) used as an automobile fuel.
- It is also expected to lower the government’s fertiliser subsidy burden, and aid gas-based power generation units.
New domestic gas pricing regime:
- Henceforth, the price of APM gas will be 10 per cent of the average price of the Indian crude basket in the preceding month. The price will be revised every month.
- Gas produced from ONGC and OIL’s nomination fields will have a floor price of $4/ mBtu and a ceiling of $6.5/ mBtu.
- This means that the two companies will get a minimum of $4/ mBtu even if the gas price as per the formula falls to a lower level.
- Similarly, no matter how high the formula-based price goes, the maximum price they can realise for APM gas will be $6.5/ mBtu.
- Therefore, based on revised formula, The Petroleum Planning & Analysis Cell (PPAC) of the Ministry of Petroleum & Natural Gas on Friday notified $7.92 per mBtu as the price of domestic natural gas as per the revised formula for the remainder of April.
- As per PPAC data, the average price of the Indian crude basket in March was $78.54 per barrel. However, ONGC and OIL will get $6.5 per mBtu.
Rationale behind the changes to gas pricing regime
- As per the 2014 gas pricing guidelines, the APM gas price was set for a six-month period based on the volume weighted prices prevailing at four international gas trading hubs Henry Hub, Alberta, National Balancing Point in the UK, and Russia for a period of 12 months and a with a lag of a quarter.
- According to the government, the earlier system based on these gas hubs had a significant time lag and high volatility and, therefore, “the need for this rationalisation and reform was felt”.
- The new regime will have the APM gas price prices linked to crude oil prices, which has now become the prevalent practice in most natural gas contracts internationally, is more relevant to India’s consumption basket, and has deeper liquidity in global trading markets on a real-time basis.
- With the changes in the pricing formula, data of the Indian crude basket price from the previous month would form the basis for APM gas price determination.
- The Indian crude basket represents a derived basket consisting of sour grades and sweet grades of crude oil in the ratio of 75.62 to 24.38. It represents the mix of crude grades processed by Indian refineries.
No change in pricing formula for gas from difficult blocks
- The changes in pricing formula for domestic APM gas do not apply to gas production from difficult acreages deep water, ultra-deep water, high-temperature, and high-pressure fields.
- A pricing regime for gas from difficult blocks such as Reliance Industries and BP’s KG-D6 and ONGC’s KG-DWN-98/2 was introduced in 2016, which allowed marketing and pricing freedom subject to a ceiling price. The revision in ceiling price for difficult fields was done every six months along with APM gas price revision.
Parikh panel suggestions: What was accepted, what wasn’t
- Although the new domestic gas pricing regime is based on the Parikh committee’s recommendations, not all of the panel’s key suggestions made it to the new pricing regime.
- The government accepted the panel’s recommendations to benchmark APM gas price to crude oil price, introduce floor as well as ceiling price, provide a 20 per cent premium for gas from new wells, and leave the pricing system for gas from difficult fields unchanged.
- But the panel’s recommendation on hiking the ceiling every year was tweaked. The Parikh panel had recommended raising the ceiling by 50 cents per year, but the government decided to keep the annual increment at 25 cents. Also, the government decided to start hiking the ceiling price after two years.
- One of the panel’s key recommendations that the government has so far not commented on is the deregulation of APM gas prices.
- The Parikh panel had recommended that APM gas prices be made market-determined by 2027. However, the details of the new pricing regime shared by the government does not have any mention of deregulation of APM gas prices.
Conclusion:
- Therefore, introduced New domestic gas pricing regime balance the interests of gas consumers and producers,
- It will also help India in achieving its aim of increasing domestic gas output and substantially increasing the share of natural gas in the country’s energy mix.
Editorial 2. NASA launches device to monitor air pollution from space
Recent Context:
- Recently, SpaceX Falcon 9 rocket successfully launched a new NASA device that can track air pollution over North America.
- The Tropospheric Emissions Monitoring of Pollution (TEMPO) instrument will allow scientists to monitor air pollutants and their emission sources from space more comprehensively than ever before, down to the neighborhood level.
- The instrument will measure pollution and air quality across greater North America on an hourly basis during the daytime, all the way “from Puerto Rico up to the tar sands of Canada.”
Why is TEMPO so special?
- “The TEMPO mission is about more than just studying pollution it’s about improving life on Earth for all
- By monitoring the effects of everything from rush-hour traffic to pollution from forest fires and volcanoes, NASA data will help improve air quality across North America and protect our planet,”
- A unique feature of TEMPO, which is about the size of a washing machine and it will be hosted on an Intelsat communications satellite in geostationary orbit.
- Existing pollution-monitoring satellites are in low Earth orbit, which means they can only provide observations once a day at a fixed time.
- TEMPO will be able to measure atmospheric pollution down to a spatial resolution of 4 square miles (10 square kilometers), or neighborhood level.
What is geostationary orbit?
- “Geostationary orbit is a common orbit for weather satellites and communications satellites, but an air quality instrument measuring gases hadn’t been there yet
- In a geostationary orbit 22,236 miles (35,786 kilometers) above the equator, TEMPO will match the rotation of the Earth, meaning it will always stay over the same location North America .
- The great thing about TEMPO is that for the first time we’ll be able to make hourly measurements over North America, so we’ll be able to see what’s happening over a whole day as long as the sun is up
Why is the mission important? (Conclusion)
- More than 40 per cent of the US population, 137 million people, live in places with unhealthy levels of particle pollution or ozone and air pollution is blamed for some 60,000 premature deaths a year.
- Among the pollutants tracked by TEMPO will be nitrogen dioxide, produced from the combustion of fossil fuels, formaldehyde and ozone.
- The data will be made available online for members of the public to monitor air quality information in their local area.
- Therefore, TEMPO instrument will allow scientists to monitor air pollutants and their emission sources from space more comprehensively than ever before and it will help in improving life on Earth for all by detecting the pollution and working on its removal.
