Govt may allow some natural gas to be sold at market price

This is to compensate and incentivise exploration in deep sea which is costly

The government may allow a part of the natural gas produced by firms like ONGC and Reliance Industries from new discoveries to be sold at market price as it looks to boost domestic exploration and production.

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 premium will be in form of allowing a fixed percentage of natural gas produced from difficult fields to be sold at market price and the remaining as per the approved price, an oil ministry source said.

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

"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.

The formula suggested by DGH was a middle path of balancing the industry expectations of market price for all of the gas and government concerns of not allowing too high a price that could have a cascading impact on cost of fertilizer and power as well as CNG and cooking gas.

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 $ 4.66 per mmBtu, the source said.

Oil Ministry, he said, after reviewing the premium formula suggested by DGH, has forwarded the same to the Finance Ministry for vetting.

An announcement on the premium is likely soon, he said. It however not clear if the industry demand of applying the premium to existing discoveries as well, will be accepted.

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 $ 5.05 per mmBtu till March 31 and has subsequently been cut to $ 4.66 in line with international movements.

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

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