1. Ceiling price for gas from difficult areas soon

Ceiling price for gas from difficult areas soon

Even though explorers such as ONGC and Reliance Industries (RIL) are expected to commence natural gas output from difficult areas only after three-four years, the government would start announcing the ceiling price for the fuel from these sources starting April 1

By: | New Delhi | Published: March 18, 2016 12:50 AM

Even though explorers such as ONGC and Reliance Industries (RIL) are expected to commence natural gas output from difficult areas only after three-four years, the government would start announcing the ceiling price for the fuel from these sources starting April 1. Considering the prevailing weighted average prices of alternate fuels (fuel oil: $7.21, LNG: $8.13, naphtha: $10.19 and coal: $3.80/mBtu), the ceiling price could be around $6.5-7/mBtu, said industry watchers.

“The plan is to announce the price (premium ceiling price) from April 1,” said a senior petroleum ministry official. The Petroleum Planning and Analysis Cell (PPAC) would calculate the price. It would also announce the effective price from April 1 for other fields. The premium price is valid for gas blocks under high pressure and high temperature, deep and ultra deep waters.

The move comes after the PM Narendra Modi-headed Cabinet Committee on Economic Affairs 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 the ‘market price’ is subject to a ceiling to be derived from landed cost of alternate fuels such as fuel oil, naphtha, LNG and coal. The new pricing formula will apply to gas projects already discovered but are yet to commence production because of un-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.

Petroleum minister Dharmendra Pradhan said reserves that are expected to get monetised under the new premium pricing are of the order of 6.75 tcf or 190 BCM or around 35 mmscmd considering a production profile of 15 years. The associated reserves are valued at $28.35 billion (R1,80,000 crore). The country’s present gas production is around 90 mmscmd. Besides, these there are around 10 discoveries which have been notified and whose potential is yet to be established.

State-run ONGC’s KG-D5 asset, where exploitation is yet to commence, the unexploited segments of the Reliance Industries’ KG D6 block (only D1 and D3, MA fields are currently producing) and GSPC Deen Dayal Upadhyay field, are the immediate beneficiaries of the calibrated marketing freedom.

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