Government may cap ONGC new well gas amid distributor concerns

The government is weighing a cap on the price of ONGC’s ‘new well gas’, which has surged 58% to $12.91 per mmbtu—well above the $8.9 ceiling for deepwater gas—after pushback from city gas distributors, according to people familiar with the matter.

The new well gas category, introduced in 2023, allows ONGC to charge a 20% premium over the domestic gas price for output from new wells in legacy fields, including older wells requiring incremental investment. Both domestic gas and new well gas are linked to crude oil prices: the former is priced at 10% of the previous month’s Indian basket and the latter at 12%. Domestic gas is subject to a $4 per mmbtu floor and a $7 cap, while new well gas has no floor or ceiling.

The recent surge in crude has pushed the notional domestic gas price to $10.76 per mmbtu, though the effective price remains capped at $7 for April. In contrast, the absence of a cap has allowed new well gas prices to climb to $12.91 per mmbtu.


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If left uncapped, the higher price could raise costs for city gas distributors—the main consumers of this gas—people said, adding that they are pushing for a rate of $8.4 per mmbtu, a 20% premium over the effective domestic gas price.

New well gas forms a meaningful share of CNG supply, which is a blend of capped domestic gas, new well gas, market-priced domestic output and imported LNG, though its exact share is unclear. Several city gas companies have already raised CNG prices by Rs 1-2.5 per unit in recent days.

Capping the price would be a difficult call for the government, the people cited said. It would dent ONGC’s returns, alter its investment outlook for legacy fields and likely trigger demands for a price floor, they said. The absence of a cap was intended to incentivise incremental production from ageing fields.

For ONGC, new well gas accounts for about 13-14% of legacy field volumes but roughly 21% of gas revenues, reflecting its higher pricing. Over the past two years, it has emerged as a key profit driver.

City gas distributors argue that even deepwater and high-pressure, high-temperature gas, typically more capital-intensive, carries a lower ceiling of $8.9 per mmbtu. That cap is linked to alternative fuel prices over a trailing 12-month period. The impact of the current surge in energy prices will only reflect in the next revision at end-September, and even then is likely to be muted due to the longer averaging period, unlike domestic and new well gas prices, which track the previous month’s crude.