The government on Thursday announced a ceiling price of $6.61/mBtu on gross calorific value basis for domestic natural gas produced from difficult areas for six months starting April 1.
The move is in line with a Cabinet decision taken three weeks ago to give “marketing and pricing freedom” for producers of such gas.
The ceiling price for difficult-area gas, much higher than the notified price of gas from other fields — which was cut to $3.06/mmBtu for April-September 2016 from $3.82/mmBtu for the previous six months — would not immediately benefit ONGC and Reliance Industries, which are the companies in possession of difficult assets. This is because it would take at least three years for these fields to start producing.
FE had reported earlier that gas deposits worth `1.8 lakh crore could get exploited over a 15-17 year period, thanks to the new policy which ensures remunerative prices. Recorded gas reserves in difficult areas are currently pegged at 6.75 trillion cubic feet (tcf), including state-run ONGC’s 4.5 tcf and GSPC’s 1 tcf. This estimate excludes RIL’s untapped KG-D6 assets and some 10 other notified discoveries whose potentials are yet to be established. The price of domestic natural gas is currently decided based on a formula approved by the Modi government in October 2014, which is linked to select global indices.
The move comes after the Cabinet Committee on Economic Affairs on March 11 approved a mechanism which allows pricing freedom to gas production from high pressure, high temperature, deep and ultra deep water blocks.
The only caveat is that the ‘market price’ is subject to a ceiling to be derived from landed cost of alternate fuels such as fuel oil, naptha, LNG and coal. The new pricing formula will apply to gas projects already discovered, but are yet to commence production because of non-remunerative pricing of the commodity.
“Both ONGC and Reliance Industries have discoveries in such areas and hence, stand to benefit from the new policy,” HSBC said in a recent report.
