KOLKATA (miningweekly.com) - India’s Petroleum and Natural Gas Ministry has failed to take a decision on the vexed issue of a differential natural gas pricing regime under which production from difficult fields could be charged a premium.

Failing to reconcile conflicting views on the issue, including that from the Finance Ministry, the Petroleum and Natural Gas Ministry has lobbed the ball into the court of the Cabinet Committee for Economic Affairs, the government’s apex economic decision-making body.

According to a Ministry official, differences between exploration and production (E&P) companies also proved impediments to Ministry’s decision-making.

Last year, the Ministry had proposed that oil and gas produced from new discoveries in deep-water or high temperature and pressure fields would be permitted to be sold at a premium.

However E&P majors were not agreeable to the stipulation that only post-2014 discoveries would entitled to charge the premium and had instead demanded that all difficult fields irrespective of date of discovery should be brought under the dual pricing regime, the official said.

As per the formula proposed by the Ministry, 20% to 50% of production from difficult fields would be permitted to be sold at a higher price, meaning the more difficult the field, the higher the volume permitted to be sold at a premium, he added.

Companies such as Reliance Industries and ONGC Limited contended that incentivisation of realisations could not be based on old and new discoveries, as this would skew the playing ground and impact the continued viability of older fields.

Another seemingly insurmountable roadblock for the Ministry was the impact of gas sold at a premium to user industries such as fertiliser, as this risked a negative impact on government spend. The official said that with fertiliser pricing being administered by the government with the government subsidising producers the difference between cost of production and retail price, gas supplied at a premium to fertilizer companies would in effect result in a higher subsidy pay-out on account of the higher cost of fertiliser production.

The move to pass on the issue to the highest decision-making body was also prompted by the imminent reduction in government administered prices for natural gas.

The government would shortly announce a revised price for gas for the next fiscal period and, given the sharp fall in international prices, India’s government determined prices were expected to fall to around $3.50 per million metric British thermal unit (mmBtu) against the $4.24 per mmBtu applicable now, and this would further impact the viability of operating and developing newer, difficult fields, the official added.