New Delhi, Oct. 7: Global exploration and production firms are in favour of market-determined pricing for shale gas.
In a response to a draft policy on shale gas and oil put up for comment by upstream regulator DGH, the exploration firms said they wanted clarity on pricing before the bidding started.
In the draft policy, the director-general of hydrocarbons (DGH) has proposed royalty and production-linked payments for the exploration of shale oil and gas, similar to coal bed methane operations.
The government is looking to launch the first shale gas auction by December 2013 and the policy could be finalised by the year-end.
BG India, in its comments, has said, “Current regulated gas price is below some international prices. The pricing should be arms-length, market-driven and linked to international crude oil.”
The draft policy does not permit cost recovery and, hence, profit sharing — the two features that were criticised by the Comptroller and Auditor General in its audit report on Reliance Industries’ KG-D6 block.
Bidders will be asked to quote a percentage of output they are willing to share with the government at different production slabs.
“This will minimise government intervention and remove complications in accounting and incentive for gold plating, which may occur while allowing profit sharing based on cost recovery,” the DGH draft said.
“The government’s share of production will be net of all statutory dues,” the report added.
The DGH has proposed a fiscal regime for shale gas on lines that exist in coal bed methane contracts where the government gets royalty and production linked payments.
“Ad-valorem royalty at the prevailing rate for crude oil and natural gas will be applicable to shale oil and gas, respectively, and accrue to the state governments, whereas the production-liked payment on ad-valorem basis will be made to the central government,” the draft policy said.