Devise formula to fix premium on natural gas from deep-water: Oil Ministry

By Nishit Shukla
NEW DELHI: The oil ministry has asked the director general of hydrocarbons (DGH) to devise a transparent formula to determine the premium on natural gas produced from challenging deep-water, ultradeep water or high-temperature and high-pressure finds, government sources said.

The government had announced earlier that natural gas would be priced on the basis of a formula based on international benchmarks, but a premium would be allowed for discoveries made in regions where exploration and drilling is costly and challenging. It later said it would consult experts to determine the premium.

"We have asked the DGH to come up with a transparent formula to devise the premium on such new discoveries. The DGH has to decide whether the premium will be paid as a percentage on the existing gas price, whether the existing gas price formula will become the base or they will devise a completely new formula. We have handed this thing over to them entirely, they must come out with this by December end," a government official told ET.

Under the new formula, the gas price would rise from $ 4.2 to $ 5.61, but there would be an incentive for difficult terrains. A senior official in DGH, the oil ministry's technical arm, said that specialists would be consulted for this purpose as it is a complex issue and the DGH was not involved in arriving at the formula for natural gas pricing. "A committee will be formed in the DGH to look into it and we might go in to hire an international consultant to arrive at the formula."

After the Cabinet approved the new formula, the oil ministry had stated stakeholders will be consulted on the mechanism of premium determination and pricing of these three categories. The ministry had said a transparent process would determine the premium and that the government would address apprehensions about the process being discretionary.