Pricing freedom for gas producers
The government on Wednesday came up with a new model of giving marketing and pricing freedom to natural gas producers in India, with the Union Cabinet clearing a standardised e-bidding process for price discovery from new production areas and high-pressure, high-temperature fields.
Through the new platform, market players and consumers will be discovering prices for new production areas whose field development plan (FDP) got clearances after February 2019.
According to industry experts, the move is expected to help major producers like Oil and Natural Gas Corporation (ONGC), Mukesh Ambani-led Reliance Industries, and Vedanta's Cairn Oil and Gas. The new mechanism will lead to immediate production of at least 40 million metric standard cubic meter per day (mmscmd) of natural gas from the Krishna Godawari basin only.
“Gas produced from highpressure and high-temperature areas, coal bed methane blocks, the northeast region, and new discoveries will be getting this marketing freedom. This will be a major step towards ease of doing business measures taken by the government,” said Dharmendra Pradhan, minister of petroleum and natural gas.
According to the regulations, producers will not be allowed to participate in the bidding process. Their affiliate companies can participate in the price-discovery initiative. All these new discoveries will be governed by the new e-bidding mechanism and affiliate marketing mechanism, which will be managed by the Directorate General of Hydrocarbons (DGH). “The country produces around 84 mmscmd of natural gas and we import almost the same. The new pricing mechanism will help in coming up with 40 mmscmd additional production in KG basin only. This will reduce our dependency on natural gas imports,” Pradhan said.
This won’t have any impact on the existing pricing formula for natural gas under the administered price mechanism, which the government came out with in November 2014. The capping on prices for difficult fields will also continue in the existing format, the minister said. This comes after the prices touched a historic low of $1.79 per million metric British thermal unit (mmbtu) for the October-march period of FY21, down 25 per cent from $2.39 per mmbtu during April-september.
The government has reduced the ceiling price for gas produced from deepwater, ultra-deepwater and high-pressure and high-temperature areas by 28 per cent to $4.06 per mmbtu for the period under review, as compared to $5.61 per mmbtu during the April-september period of 2020. The current prices are the lowest in the last six years, since the new pricing system was implemented in November 2014.