Approves pricing freedom for undeveloped gas discoveries in difficult areas but with a cap, a move that would result in 85% jump in rates to $7.08/mmbtu
New Delhi : In major reforms, the government approved pricing freedom to help monetise Rs 1.8 lakh crore of gas discoveries, brought in a more liberal fiscal regime for oil and gas exploration and decided to amend the mining laws to allow companies to more freely sell assets.
In a series of decisions aimed at attracting investment in the nation’s oil and gas industry, the Cabinet headed by Prime Minister Narendra Modi approved pricing freedom for undeveloped gas discoveries in difficult areas but with a cap, a move that would result in 85 per cent jump in rates to USD 7.08 per million British thermal unit at current prices.
The price, which would not apply to those fields under litigation, would help monetise 6.75 trillion cubic feet of reserves in 28 discoveries that can add up to 35 million standard cubic meters per day of gas production for 15 years, Oil Minister Dharmendra Pradhan said. India currently produces around 90 mmscmd of gas, hardly meeting 40 per cent of the needs.
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ONGC, RIL and GSPC will get freedom to price gas from its idle discoveries in deepsea, ultra deepsea and high-pressure and high- temperature areas Cabinet also approves replacing the controversial Production Sharing Contract with simpler revenue-sharing regime for all future field auction The decision would help monetise 6.75 trillion cubic feet of reserves The policy, however, kept out extension of Cairn India’s prolific Raj block
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Oil and Natural Gas Corp (ONGC), Reliance Industries and GSPC will get freedom to price gas from its idle discoveries in deepsea, ultra deepsea and high-pressure and high- temperature areas.
But this will be subject to a cap which would be lower of the one-year average cost of imported cost of fuel oil, or landed price of liquefied natural gas (LNG) or weighted average of imported price of coal, fuel oil and naphtha. Based on 2015 prices, the lowest of these averages comes to USD 7.08.
Pradhan said the Cabinet also approved replacing the controversial Production Sharing Contract (PSC) with simpler revenue-sharing regime for all future field auction.
A single licence for exploration and production of all forms of hydrocarbon in blocks bid out to firms offering the maximum revenue to the government would be given. Blocks would be allocated under open-acreage policy, wherein companies can submit bids for areas of their choice.
Also, the Cabinet Committee on Economic Affairs approved a policy for grant of licence extension to small and medium sized discovered fields like Panna/Mukta Tapti of BG Group of UK by 10 years on revised terms. The policy, however, kept out extension of Cairn India’s prolific Rajasthan block.
Reliance has about a dozen undeveloped discoveries in its KG-D6 block while ONGC has about 6-7 gas finds in neighbouring KG-DWN-98/2 or KG-D5 area. GSPC’s block KG-OSN-2001/3 too has few gas discoveries which are awaiting beginning commercial production.
The cap rate of USD 7.08 per million British thermal unit under the new pricing regime would compare to USD 3.82 per mmBtu rate based on a formula approved by the BJP government in November 2014. Price as per this formula is slated to drop to USD 3.15 in April, a rate considered too low to meet cost of exploration.
