Cabinet to take call on gas pricing for 'difficult' oilfields

New price could go up to $6 per mmBtu for ONGC, RIL discoveries

The oil ministry is likely to approach the Union Cabinet soon seeking a decision on pricing for oil and gas output from undeveloped discoveries located in difficult geologies hard to exploit - deep sea, ultra-deep sea and high temperature-high pressure areas. This follows Finance Minister Arun Jaitley's statement on the proposal to link pricing for such discoveries to alternative fuels.

"A note for the Cabinet is not yet prepared but we may have to go to the Cabinet soon to get a decision on the aspects of the issue, including what kind of alternative fuels can be considered for premium pricing and also what should be the period for which the average prices of alternative fuels should be looked at," said a senior official from the petroleum ministry.

The price of domestically produced natural gas, except from difficult areas, is currently decided based on a formula approved in the new gas pricing guidelines of October 2014 and is linked to select global indices. Due to the ongoing slump in global crude oil and gas price benchmarks, this price has come down to $3.82 per unit for the period between October 2015 and March 2016 on gross calorific value basis from $4.66 per unit in the previous six months. The price is expected to come down further to $3.15 per unit from April.

The government is planning to price undeveloped gas discoveries in difficult areas using average of landed price of naphtha, fuel oil and liquefied natural gas and the Cabinet will take a decision, according to Economic Affairs Secretary Shaktikanta Das. The gas price using this methodology will come to over $6 per unit at the prevailing liquefied natural gas, fuel oil and naphtha rates - a price that may be applicable to around two dozen discoveries of Oil and Natural Gas Corporation, Reliance Industries and Gujarat State Petroleum Corporation in KG Basin.

Jaitley had, in his Budget speech on Monday, said the discovery and exploitation of oil and gas has been below potential and the government is considering incentivising gas production from difficult areas, which are presently not exploited on account of higher cost and higher risks.