NEW DELHI: The Cabinet Committee on Economic Affairs (CCEA) approved on Wednesday the formulation of a standard procedure for the discovery of gas market prices in various contractual regimes, Oil and Natural Gas Minister Dharmendra Pradhan said.
Briefing reporters after the cabinet meeting, Pradhan added that the hydrocarbons general directorate (DGH) will propose a standardized electronic bidding mechanism for transparent gas market price discovery.
The move is expected to attract investors and help India boost a gas-based economy. Pradhan said the decision will help increase domestic gas production by an additional 40 million standard cubic meters per day (mmscmd), from the current 80 mmscmd.
The government has already granted free pricing and commercialization of gas from the blocks awarded under the Small Uncovered Field Policy (DSF), the Hydrocarbon Exploration and Licensing Policy (HELP) and the coalbed methane contracts (CBM) , and discoveries of difficult fields such as water, ultra-deep water and areas of high pressure and high temperature.
Wednesday’s decision will subject him to a standard procedure for discovering market gas prices.
“The objective of the policy is to prescribe a standard procedure to discover the market price of gas that gas producers will sell in the market, through a transparent and competitive process, allowing Affiliates to participate in the bidding process for the sale of gas and allow marketing freedom for certain Field Development Plans (FDP) where Shared Production Contracts already provide price freedom, “the government said in a statement.
However, this mechanism will not be applicable for the production of blocks awarded by nomination, governed by a formula announced in October 2014 by the government of the National Democratic Alliance. The formula uses the weighted averages of the prices in the three major international gas trading centers of the US Henry Hub, the UK National Balancing Point, and the customs clearance rate of Japan.
Experts have welcomed the move.
“This is a fantastic development and it brings us very close to the open market mechanism. The measure will benefit producers who may be constrained due to prevailing price caps. The move will promote investment in exploration and production and potentially balance the margins of downstream to upstream players. In the future, perhaps even a centralized platform is not required and we could move to an open mechanism, where gas-to-gas competition becomes predominant due to the commissioning of important LNG import terminals, “said Sanjay Sah, Deloitte’s oil and gas partner.
“This will bring uniformity in the bidding process in the various contractual regimes and policies to avoid ambiguities and contribute to the ease of doing business,” the government statement said, adding: “National gas production has complete freedom of marketing and pricing. All discoveries and field development plans approved after February 28, 2019 are free to market and price. “
Gas comprises about 6.2% of India’s primary energy mix, well behind the world average of 24%. The government plans to increase this share to 15% by 2030. India’s gas demand is expected to be driven by the fertilizer, energy, urban gas distribution and steel sectors.
“In a significant step to move towards a gas-based economy, the Cabinet passes the ‘Natural Gas Marketing Reforms’; The move aims to prescribe a standard procedure for discovering the market price of gas to be sold in the market through a transparent and competitive process, “the government spokesman said in a tweet.
“This will bring uniformity in the bidding process across the various contractual regimes and policies to avoid ambiguity and contribute to the ease of doing business,” the government spokesman said in another tweet.
This comes at a time when the proportion of imported LNG has increased. According to analysts, domestic gas consumption had peaked in 2010, when Reliance Industries Ltd’s D6 block in the Krishna-Godavari basin produced 61.43 mmscmd in March 2010. Production started to decline from April 2010 and it is almost insignificant today.
Under the gas price formula for the nominated fields, India has reduced the price of domestic natural gas to $ 1.79 per million British thermal units (mmBtu), the lowest under the new domestic gas pricing regime, which it was introduced in 2014. The new price will be applicable from October 1 to March 31. The reduction has been favored by a sharp drop in crude oil and gas prices.
This sharp drop in prices to date will help reduce the cost of urea manufacturing, power generation and benefit consumers of compressed natural gas (CNG) and piped natural gas (PNG) in a context of plummeting prices. energy companies amid national lockdowns to stop the coronavirus. (COVID-19 pandemic.
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