FinMin returns Oil Ministry's gas price premium proposal

Finance Ministry has returned an Oil Ministry proposal to allow market price for part of the natural gas produced by firms like ONGC and Reliance Industries from difficult fields.

"Finance Ministry has made certain observations on the proposal and returned it without approval," a top source with direct knowledge of the development said.

The government, while approving a new gas pricing formula based on international hub rates in October last year, had decided that new gas discoveries in deep-water, ultra-deep sea or high-temperature and high-pressure fields will be given a premium over and above the approved price.

The Oil Ministry was asked to determine the premium to be paid to discoveries made post October 2014.

Based on a recommendation from its upstream technical arm, the ministry proposed to allow a fixed percentage of natural gas produced from difficult fields to be sold at market price and the remaining as per the approved price.

While the current domestic gas price is USD 4.66 per million British thermal unit, the market price as measured by the rate at which the fuel is imported, is USD 7-8.

The source said the finance ministry has its comments stated that the premium should be consistent with the October 2014 Cabinet decision.

Following this, the Oil Ministry has resubmitted the proposal explaining that the premium proposed was consistent with the October 2014 decision of the Cabinet Committee on Economic Affairs (CCEA).

"The percentage of total volumes that can be sold at market price will be different for ultra-deep sea discoveries, deepsea finds and high-temperature and high-pressure (HTHP) fields," the source said without elaborating.

All gas producers including state-owned Oil and Natural Gas Corp (ONGC) have stated that it was uneconomical to produce gas from difficult fields at the current price of USD 4.66 per mmBtu, the source said.

As per mechanism approved in October 2014, price of domestically produced natural gas is to be revised every six months using weighted average or rates prevalent in gas-surplus economies of US/Mexico, Canada and Russia.

Gas price, according to the formula, was USD 5.05 per mmBtu till March 31 and has subsequently been cut to USD 4.66 in line with international movements.

The current price is among the lowest in Asia Pacific. China pays explorers USD 11.9 per mmBtu rate for new projects while Indonesia and the Philippines price the fuel at USD 11 and USD 10.5, respectively.

Gas from offshore fields in Myanmar, where Indian firms ONGC and GAIL have stake, are sold to China for USD 7.72. Thailand prices gas from new projects at USD 8.2 per mmBtu. Vietnam has a gas price of USD 5.2 and Malaysia USD 5.