ONGC gas price may be capped at $6.5, no change for Reliance-bp
Panel likely to recommend linking the price of most local output to an Indian crude basket
Agovernment-appointed gas price review panel, led by Kirit Parikh, is recommending a floor and ceiling price for natural gas produced from legacy fields of state-owned firms for five years to help moderate CNG and piped cooking gas rates.
State producers Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) will be paid a minimum or floor price of $4 per million British thermal unit and a cap or ceiling price of $6.5 as against the current rate of $8.57, three sources with direct knowledge of the matter said.
The report, which calls for not tinkering with the existing pricing formula for difficult fields such as KGD6 of Reliance Industries and bp is under finalisation, and may lower the ceiling price for ONGC gas marginally. The floor and ceiling price will be applicable for five years although the initial thought was to keep it for three years, they said adding the ceiling price will have an annual escalation clause. The escalation being suggested is $0.5 per mmbtu annually with no change pricing for first two years or a $0.25 per mmbtu annual escalation for five years. The escalation will be adjusted to the foreign exchange rate, they said.
The panel, which was tasked with suggesting a “fair price to the endconsumer” while ensuring a “marketoriented, transparent and reliable pricing regime for India’s long-term vision for ensuring a gas-based economy,” has favoured two different pricing regimes, sources said.
For the legacy or old fields of ONGC and OIL — where the cost has long been recovered and which are currently governed by a formula that uses rates in gas-surplus nations such as the US, Canada and Russia — the committee is recommending a floor or minimum base price and cap or ceiling rates. This would ensure that prices do not fall below the cost of production, as they did last year, or do not spike to record levels as currently. Gas from legacy fields is sold to city gas distributors who had to raise rates of CNG and piped cooking gas by over 70 per cent after prices went up from $2.90 per million British thermal unit till March to $6.10 in April and further to $8.57 last month, reflecting a surge in global rates. This rise in rates, which narrowed the gap between CNG and polluting diesel, had prompted the review.
Sources said the city gas will get top priority in the allocation of the gas from legacy fields, called APM gas. The sector will be in the ‘no-cut’ category, meaning supplies to other consumers will be cut first in case of a decline in production.
For the gas from difficult fields such as those lying in deepsea or which are in high-pressure, high-temperature zones, the committee is suggesting not tinkering with the existing mechanism of paying them higher rates based on a different formula to compensate for the greater risk and cost involved, sources said.
This would ensure that explorers, who are seeing a surge in the cost of services due to the spike in global energy rates, are not put at a disadvantage. This way, the concerns over investments in exploration and production (E&P) being hit would also be addressed, they said, adding that market-driven pricing would also encourage new investments and attract global players. KG-D6 fields of Reliance Industries and its partner bp of the UK are governed by the pricing formula for difficult fields. Rate for difficult fields from October 1 is $12.46 per mmbtu.
Panel may favour linking local gas prices to local crude basket
The panel reviewing natural gas prices in India is set to recommend linking the price of most local output to an Indian crude basket, and also suggest a price cap that would be about 25% lower than current rates, industry sources told