India will soon have differential pricing for domestically produced gas.
The Cabinet Committee on Economic Affairs on Thursday has allowed marketing and pricing freedom to explorers producing natural gas from deepwater, ultra-deepwater, and high temperature high pressure fields.
However, all gas fields currently under production will continue to be governed by the pricing regime that is now applicable to them.
The policy is applicable to future discoveries as well as existing discoveries yet to commence commercial production as on January 1, 2016. The move will help companies such as Reliance Industries Ltd, ONGC and Gujarat State Petroleum Corporation (GSPC) to develop and produce from their deepwater, ultra-deepwater and high temperature high pressure fields.
The price for such discoveries will be based on weighted average of import price of substitute fuels – coal, fuel oil, and naphtha. To ensure that the consumer interests are protected, the price will be capped at the lowest out of either imported fuel oil, weighted average import landed price of coal, fuel oil and naphtha or LNG import landed price, Dharmendra Pradhan, Minister of State (Independent Charge) for Petroleum and Natural Gas said. The ceiling price will be in US dollar per million British thermal unit (mBtu), and the weighted average of import price of substitute fuels will be determined as a formula — 0.3 multiplied by price of coal + 0.4 multiplied by price of fuel oil + 0.3 multiplied by price of naphtha.
At current prices, natural gas from deepwater, ultra-deepwater and high temperature high pressure fields could fetch $7 per million British thermal units.
ONGC had said earlier that production from such fields will be viable only if it is higher than $6 per mBtu.
The price data used for calculation of the price cap will be collected over one year and revised every six months.
This decision has been pending since October 2014, when the Centre announced the New Domestic Natural Gas Pricing Guidelines, 2014.
“This will help in production of 35 million standard cubic metres a day of natural gas production for the next 15 years, translating to around 6.7 trillion cubic feet of natural gas. This decision will help unlock ₹1.8 lakh crore of investments,” Pradhan said.