Energy producers want credible gas pricing policy

An association of top energy firms, including Reliance Industries, Cairn and BP has demanded a natural gas pricing policy that is "legitimate, relevant and credible" to maintain investor interest in Indian E&P sector.
In its submission to the four-member panel of secretaries working out a new gas pricing mechanism, Association of Oil and Gas Operators (AOGO) said the government had awarded areas for exploration of oil and gas under New Exploration Licensing Policy (NELP) "on the basis of maximising government share and not lowest price of hydrocarbons."
The Production Sharing Contracts (PSC) government entered into firm like RIL for exploration and production (E&P) provides for marketing freedom to contractors for sale of gas within India at arm's length to the benefit of all the parties to the contract.

The government, as per PSC, has limited role of only "approving a formula or basis for sale of gas," it said, adding, the contract enjoins both government and the explorer to operate on the principle of maximising the total revenue.
A four-member panel of secretaries from different ministries is holding consultations to work out a new gas pricing mechanism, as the Rangarajan formula of doubling rates to USD 8.4 per mmBtu was not acceptable to the new government.
"Subsidies borne by the government are extraneous to the PSC and cannot form any part of the calculus for determining the basis of pricing under PSC," AOGO said.

AOGO said any country looking for private sector participating to explore its vast unexplored basins needs to maintain the sanctity of contract.

Domestic exploration can be expedited only if rice is fair and competitive. "There are a number of discoveries that are still awaiting production in the absence of a proper pricing policy," it said. "An artificially fixed intermediate level pricing regime divorced from the market suffers from serious drawbacks."
AOGO said a higher price will substantially increase government revenues from tax, royalty and profit share which can be used to subsidise priority sectors.
"We understand there is already over 10 trillion cubic feet of gas reserves awaiting right price signal for development... These discoveries have potential to add over 70 million standard cubic meters per day of gas production saving almost about USD 16 billion of import bill every year," it said.

AOGO said globally all economies particularly energy deficit ones are moving towards freer market prices. "Gas pricing reforms has been the basis of the shale gas revolution in the US and the country's march to self-sufficiency."
"In Brazil and China, two key BRIC countries with economic conditions similar to India, unlocking of value in the gas sector has been based on market linkages to crude oil prices," it added.