FinMin returns gas price premium proposal

Finance Ministry has returned an Oil Ministry proposal to allow <g data-gr-id="60">market</g> price for part of the natural gas produced by firms like ONGC and Reliance Industries from difficult fields. “Finance Ministry has made certain observations on the proposal and returned it without approval,” a top source with direct knowledge of the development said.

The government, while approving a new gas pricing formula based on international hub rates in October last year, had decided that new gas discoveries in deep-water, ultra-deep sea or high-temperature and high-pressure fields will be given a premium over and above the approved price.

The Oil Ministry was asked to determine the premium to be paid to discoveries made <g data-gr-id="69">post October</g> 2014. Based on a recommendation from its upstream technical arm, the ministry proposed to allow a fixed percentage of natural gas produced from difficult fields to be sold at market price and the remaining as per the approved price. While the current domestic gas price is $4.66 per million British thermal unit, the market price as measured by the rate at which the fuel is imported, is $7-8.

The source said the finance ministry has its comments stated that the premium should be consistent 

with the October 2014 Cabinet decision. Following this, the Oil Ministry has resubmitted the proposal explaining that the premium proposed was consistent with the October 2014 decision of the Cabinet Committee on Economic Affairs (CCEA).

“The percentage of total volumes that can be sold at market price will be different for ultra-deep sea discoveries, <g data-gr-id="54">deepsea</g> finds and high-temperature and high-pressure (HTHP) fields,” the source said without elaborating.

All gas producers including state-owned Oil and Natural Gas Corp (ONGC) have stated that it was uneconomical to produce gas from difficult fields at the current price of $4.66 per mmBtu, the source said. As per mechanism approved in October 2014, <g data-gr-id="90">price</g> of domestically produced natural gas is to be revised every six months using weighted average or rates prevalent in gas-surplus economies of US/Mexico, <g data-gr-id="91">Canada</g> and Russia. Gas price, according to the formula, was $5.05 per mmBtu till March 31 and has subsequently been cut to $4.66 in line with international movements. The current price is among the lowest in Asia Pacific. China pays explorers $11.9 per mmBtu rate for new projects while Indonesia and the Philippines price the fuel at $11 and $10.5, respectively. Gas from offshore fields in Myanmar, where Indian firms ONGC and GAIL have <g data-gr-id="50">stake</g>, are sold to China for $7.72. Thailand prices gas from new projects at $8.2 per mmBtu. Vietnam has a gas price of $5.2 and Malaysia $5.

Gas <g data-gr-id="65">prices in general</g> are <g data-gr-id="63">very</g> contentious issue and the prices are high in Asia in comparison to global trends and experts point out that it may be due to <g data-gr-id="59">demand supply</g> dynamics in the geography.  India faces huge gas demand and domestic production is not enough to meet it forcing the country to import huge quantity of gas from <g data-gr-id="61">international</g> market. 

The country is also not able to fully utilize existing import capacity. Some experts have been pitching for market-linked price saying it is important to encourage domestic gas production. There has been a decline in international gas price. ONGC and Oil India, which account for more than three-fourth of gas production occasionally grumble about low prices but end up bearing with the government.Reliance Industries under-delivered on the gas output from the KG-D6 field has been 

clamoring for <g data-gr-id="47">market linked</g> price, but faces blame for lowering output.