Govt mulls easing of gas pricing

Govt mulls easing of gas pricing
Highlights

International players like BP and domestic operators Reliance Industries and Oil and Natural Gas Corp (ONGC) are seeking pricing freedom as the current rates make new investments unviable.

Plans to alter the production sharing contract with revenue-sharing model for future gas auctions

The new model will replace the current practice of companies getting blocks by bidding the maximum work programme and then recovering all of their investment before sharing profits with the government

New Delhi : With the current rates considered too low to support exploration and production cost, the government on Monday proposed to free natural gas pricing as well as replace the controversial Production Sharing Contract (PSC) with simpler revenue-sharing regime for all future field auctions.

"In the recently announced marginal field policy, the government has provided pricing and marketing freedom for the natural gas. On similar lines, it is proposed to provide pricing and marketing freedom for the natural gas to be awarded under the new contractual and fiscal regime," the Oil Ministry said.

In September, the government had allowed pricing freedom for the gas produced from 69 small and marginal fields it plans to auction shortly. The ministry has invited comments from stakeholders on a consultation paper on new fiscal and contractual regime for award of hydrocarbon acreages.

International players like BP and domestic operators Reliance Industries and Oil and Natural Gas Corp (ONGC) are seeking pricing freedom as the current rates make new investments unviable.

The government had in October last year approved a new pricing formula for all domestically produced natural gas. As a result, rates rose by about 33 per cent to $5.61 per million British thermal unit for a period up to March 31 from the long-standing price of $4.2.

"Government has been reviewing policies from time to time for exploration activity and investment. Over the years, there has been a shift in the E&P policy, from nomination acreage to competitive bidding. Government has attempted many reforms in the E&P management in tune with government’s goal of 'ease of doing business'," the notice said.

At present, conventional oil and gas exploration is covered by the New Exploration Licensing Policy (NELP) while CBM exploration and production is governed by a separate regime. There is no licensing regime for shale oil and gas. It also proposed Open Acreage Licensing Policy (OALP) allowing companies to choose the area for exploration rather than government identifying blocks and offering them in bid rounds.

The new model will replace the current practice of companies getting blocks by bidding the maximum work programme and then recovering all of their investment before sharing profits with the government. As per the new gas pricing formula approved in October 2014, the domestically produced natural gas price is revised every six months.

Gas prices in India are determined by taking a volume-weighted annual average of the prices prevailing in Henry Hub (US), National Balancing Point (UK excluding Russia), Alberta (Canada) and Russia. Prices are calculated on the trailing 12-month data with a lag of one quarter.

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