Deep-sea gas becomes costlier as government raises price ceiling

The government has raised the ceiling price for natural gas produced from difficult fields, including Reliance Industries and BP’s KG-D6 block, to $9.89 per million British thermal units (MMBtu) for six months from October 1. The previous ceiling was $8.90 per MMBtu.

The new ceiling applies to gas produced from deepwater, ultra-deepwater and high-pressure, high-temperature discoveries between October 1, 2026 and March 31, 2027, according to a notification issued by the Petroleum Planning and Analysis Cell (PPAC) under the oil ministry.

Gas produced from these difficult fields has marketing and pricing freedom under the government’s policy, but remains subject to a government-notified ceiling.

The higher ceiling could provide some relief to producers developing offshore gas resources, where production costs are generally higher than those from mature onshore and legacy fields.

For gas produced by state-run ONGC and Oil India Ltd from their nomination fields, the government has notified an APM price of $11.22 per MMBtu for October. However, the actual price remains capped at $7 per MMBtu, according to PPAC.

APM gas is produced from the legacy fields of ONGC and OIL and is supplied to priority sectors such as city gas distribution, fertiliser and power.

New-well gas to get 10% premium

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

As the APM gas price remains capped at $7 per MMBtu in October, the effective price for new-well gas can rise to up to $7.70 per MMBtu.

The premium is intended to encourage ONGC and OIL to invest in developing additional reserves and bringing new production on stream. The existing ceiling for gas from older, legacy fields remains unchanged.

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

How APM gas pricing changed

In April 2023, the government moved to a pricing formula for gas from legacy fields. The formula links the price to 10% of the monthly average crude oil import price, subject to a floor and a ceiling.

The ceiling was initially fixed at $6.50 per MMBtu. It was later increased by $0.25 annually after a two-year freeze.

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

Before the 2023 reform, APM gas prices were revised every six months based on international gas benchmarks. They ranged from $1.79 per MMBtu in 2021 to $8.57 per MMBtu in the six months ended March 2023.

The separate pricing regime for deepwater and other difficult fields was introduced to encourage investment in technically challenging hydrocarbon resources by giving producers greater pricing and marketing flexibility.

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

Natural gas is used as feedstock in fertiliser production and for power generation. City gas distributors also use it to supply compressed natural gas and piped natural gas. Changes in domestic gas prices can therefore affect input costs across these sectors.