Gas firms seek price freedom

Oil and gas industry association PetroFed, whose members include ONGC and Reliance Industries, has said the government should give them the freedom to fix prices for natural gas from existing fields such as KG-D6.

By Our Special Correspondent
  • Published 5.01.16
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New Delhi, Jan. 4: Oil and gas industry association PetroFed, whose members include ONGC and Reliance Industries, has said the government should give them the freedom to fix prices for natural gas from existing fields such as KG-D6.

Responding to the oil ministry's consultation paper on new fiscal and contractual regime that allows pricing and marketing freedom for gas produced from fields to be awarded in future, it said a capped price equivalent to the imported cost should be allowed for existing fields as well.

"The existing production sharing contract (PSC) provisions regarding gas pricing should be followed in letter and spirit and the price should be determined on an arm's length basis by competitive market forces," the Petroleum Federation of India (PetroFed) said.

The PSC for blocks such as KG-D6 of RIL and KG-DWN-98/2 of ONGC provides for pricing of gas on an arm's length basis through competitive bid route.

Existing fields such as KG-D6 continue to be governed by October 2014 pricing guidelines according to which rates are $4.24 per million British thermal unit (mBtu), which is considered unviable. This price compares with $6-7 per mBtu rate at which gas (LNG) is imported from spot or current market.

"Such pricing is reflective and responsive to demand-supply dynamics," PetroFed said. "To put a cap on gas price it may be considered permissible up to the maximum of import parity price of LNG in the country."

PetroFed said pricing and marketing freedom would help to build the confidence of investors on the future implementation of the new policy. The association also pitched for pricing and marketing freedom for all forms of hydrocarbons.

The ministry had in November 2015 proposed to free gas pricing and give marketing freedom after replacing the controversial PSC with simpler revenue-sharing regime for all future field auctions.

In the consultation paper, the ministry had proposed a "uniform licensing policy" that will allow exploitation of all forms of hydrocarbons - conventional oil and gas as well as unconventional shale oil and gas and coal-bed methane - under one permit.

In future, oil and gas acreage will be given to companies offering the highest share of profit to the government.