Producers urge pricing freedom also for current oil, gas fields

Urging the government to allow natural gas pricing freedom to existing fields like KG-D6 in the eastern offshore, the Petroleum Federation Of India (PetroFed) has said a capped price equivalent to the imported cost should also be allowed to existing fields.

"The existing Production Sharing Contract provisions regarding gas pricing should be followed in letter and spirit and the gas pricing should be determined on arm's length basis by competitive market forces," PetroFed, whose members include state-run ONGC and private players like Reliance Industries, said in their comments on ministry's consultation paper on a new contractual regime for gas produced from fields awarded in future.

"Such pricing is reflective and responsive to demand-supply dynamics," PetroFed said in their comments, copies of which sources made available to reporters here on Monday.

"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," it added.

In November, the government circulated a consultation paper inviting comments, about easing doing business in exploration that proposed to free domestic natural gas pricing and replace the existing production sharing contract by the revenue-sharing model for all future hydrocarbon acreage auctions.

The existing production sharing contracts (PSCs) for blocks like KG-D6 and KG-DWN-98/2 provides for pricing the gas on an arms-length basis through the competitive bidding route.

"In addition to natural gas, there should be pricing and marketing freedom for all forms of hydrocarbons," Petrofed said.

In September, the government approved auction of 69 small and marginal oil and gas fields on a new revenue sharing model, where bidders will quote the revenue they will share with the government at both low and high ends of the price and production band. The new model will replace the controversial PSCs - by which oil and gas blocks are awarded to those firms which show they will do maximum work on a block - that has governed bidding under the earlier nine New Exploration Licensing Policy rounds.

"The operator/consortium should have freedom in marketing of gas without any constraint. There should, therefore, not be any allocation of produced gas and if required, it should only be a percentage of the production," PetroFed said.

"The cost of offshore transportation of gas from well head to shore location for shallow/deep offshore blocks and other costs towards processing to meet customer specification should be rationalized and added to the cost of gas," it added.

The price of domestic natural gas fell this year on applying the NDA government's new formula for calculation, and was cut 18 percent, from $4.66 per unit to $3.82 per unit, for six months starting October 1.

Major players engaged in exploration activity in India have been seeking pricing freedom as the current rates make new investments unviable.