Decision on premium for deep sea gas discoveries by early 2015

The government will by early next year decide on the premium that will be paid for new gas discoveries in deep-sea over and above the just approved rate of USD 5.61, Oil Secretary Saurabh Chandra said today.
The Cabinet Committee on Economic Affairs (CCEA) had on October 18 approved a revised formula for pricing of all domestically produced gas which would lead to a price of USD 5.61 per million British thermal unit from current USD 4.2.
The rates will be implemented from November 1, he said.
The CCEA had decided that "for all discoveries after this decision, in ultra deep water areas, deep water areas and high pressure-high temperature areas, a premium would be given on the gas price to be determined as per the prescribed procedure."

Chandra said stakeholders will be consulted on the mechanism of premium determination and pricing of these three categories.
"A transparent process will determine this. Apprehensions that there will be discretion will be addressed," he said adding consultations with stakeholders and experts will begin shortly and the mechanism will be in place in "coming new year."

On the gas price approved by the CCEA on Saturday, he said the Rangarajan formula, approved and notified by the previous UPA government, has been modified by removing high priced liquefied natural gas (LNG) imports into India and replacing Japanese imports with gas price in Russia and Canada.

Price will be revised biannually based on 12 month weighted average of rates in US Henry Hub, UK's NBK, Russia and Canada. The price on November 1 would be USD 5.61 per mmBtu.
Chandra said by removing price of LNG imported into India, USD 2 has been knocked off the Rangarajan formula that would have given a price of USD 8.51 per mmBtu.
Removing Japanese imports, knocked off another USD 0.34 from the Rangarajan formula. Some other minor changes in US Henry Hub rates and using price of gas consumed in Russia brought down the rate by a total of USD 3.46 to USD 5.05 per mmBtu.

He said USD 5.05 per mmBtu is the rate as per gross calorific value (GCV) basis which when converted to net calorific value (NCV) comes to USD 5.61. The current rate of USD 4.2 is also on NCV basis.
The production sharing contract (PSC), he said, provides for competitive arms length price market price. Market price would require gas-on-gas competition.
"In India, we are still some distance away from gas-on-gas competition. Therefore we have looked at regions or countries where there is gas-on-gas competition," he said.
Unlike oil, there is no benchmark price for gas globally. So the formula takes average price and weighted with annual volumes of gas which is consumed to arrive at a rate, he said.