he government has approved a 20 per cent premium over the regulated or APM price for any natural gas that ONGC will produce from new wells, the company said on Monday.

Currently, two pricing regimes govern the majority of the domestic production of natural gas, which is used to generate electricity, produce fertiliser, turn into CNG for running automobiles and piped to households for cooking.

Gas produced from legacy or fields given to state-owned Oil and Natural Gas Corporation (ONGC) and Oil India Ltd, on nomination basis, is priced at 10 per cent of the prevailing price of crude oil that India imports.

This price, subject to a cap price of USD 6.5 per million British thermal units, is called regulated or APM price. So, at the current Indian basket price of USD 77 per barrel, the APM price for gas produced from ONGC’s Mumbai High and Bassein fields in the western offshore should come to USD 7.7 per mmBtu, but it is paid the cap price of USD 6.5.

Gas produced from difficult fields, such as those in the deep sea, is governed by a different formula and paid a higher rate because of the higher cost involved in its production. That price for six months starting April 1 is USD 9.87 per mmBtu.

When these formulas were adopted last year, it was decided that gas produced from new wells, even in legacy fields, would be paid a premium of 20 per cent over the APM price. Now, that has been notified.

“As per guidelines for domestic gas pricing, domestic natural gas price (APM price) was fixed at 10 per cent of the Indian crude basket price as announced by Petroleum Planning and Analysis (PPAC) on a monthly basis. It was provided in the guidelines that for the gas produced from new wells or well intervention in the nomination fields of ONGC/Oil India Limited, there would be a premium of 20 per cent over APM prices -- a total of 12 per cent of Indian crude basket price for new gas.

“The modalities for the same had to be worked out by the Directorate General of Hydrocarbon (DGH) for approval of the Ministry of Petroleum and Natural Gas (MOPNG),” ONGC said in a statement.

The ministry, it said, has now notified the allocation of gas produced from new wells or well interventions from nominated fields of ONGC/OIL at a 20 per cent premium over the APM price.

“The enhanced price for new gas will make the new gas development projects viable and help the ONGC to augment the production of natural gas from nominated fields in challenging areas that require higher amounts of capital and technology.

“This will enhance the investment capacity in the company to take up development projects, which are otherwise capital intensive and involve a higher degree of risks requiring commensurate prices,” it said.

ONGC Board has recently approved the Daman Upside Development project in its nominated field of Mumbai High for Rs 7,800 crore for increasing domestic gas production, and the job has already been awarded for execution.