KOLKATA (miningweekly.com) – The Indian government has started work on implementing a free pricing regime for domestically produced natural gas, which would be freely tradable at exchanges.
The move is in line with recommendations by government policy advisory body, the National Institute for Transformation of India Commission (NITI Aayog), that restrictions on domestically produced natural gas be lifted.
It has been learnt that the current thinking within the Petroleum and Natural Gas Ministry is that the proposed free pricing regime needs to be phased out over a period of three years.
Government officials familiar with the work under way said that the Ministry would prepare a working note on natural gas free pricing to be put before the Cabinet of Ministers for approval.
They said that in the interim period of three years, oil and gas exploration and production (E&P) companies would be permitted to sell part of the natural gas production from domestic fields to buyers at negotiated prices, while the balance would need to be transacted at current government administered pricing.
Under the current pricing dispensation, the government periodically sets the price. For example, last September, the government lowered domestic natural gas prices to $3.23 per million metric British thermal unit (mmBtu), from $3.69 mmBtu earlier. In the case of production from fields categorised as ‘difficult’, the price was lowered to $8.43 mmBtu from $9.32 mmBtu earlier.
As things stand now, free pricing of natural gas is partially permitted in certain cases. E&P companies can avail free pricing of natural gas in the case of fields secured through auctions under the hydrocarbon exploration licensing policy (HELP). Fields allocated before the HELP era are not covered under free pricing.
However, the government is yet to take a call on whether to set a price cap, or a maximum price below which producers and buyers would be able to negotiate transactions.
Major E&P companies, which were likely to be beneficiaries of free pricing, have submitted to NITI Aayog that any pricing cap would not be compatible with developing a mature free market for the commodity and evolving a market-based price discovery mechanism.
Government officials engaged in laying down the roadmap for free pricing said that while a price cap might not be a necessity, or desirable in the current environment of low natural gas prices, it could become imperative in protecting consumer interests at a time when price volatility hits the market.
Evolving a natural gas free market based domestic framework was essential to achieve India’s ambitious target of wooing foreign direct investments in the sector, the officials said.
According to Petroleum and Natural Gas Minister Dharmendra Pradhan, India was aiming to attract investments of $118-billion in oil, gas exploration, as well as natural gas infrastructure. Of this, the Minister said $58-billion would be invested by 2023 in oil, gas production and another $50-billion for construction of natural gas infrastructure like pipelines and terminals.