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In a step towards India’s goal of achieving a gas-based economy, the NITI Aayog has lined up a proposal to give complete marketing and pricing freedom to all natural gas produced in the country, including nominated gas fields.
The planning body is batting for selling all natural gas through the Indian Gas Exchange (IGX), the country’s first natural gas exchange, where the buyer and seller can decide on prices in a transparent manner, said sources aware of the development.
The move, if it gets cleared by the government, will be advantageous to companies like Oil and Natural Gas Corporation (ONGC) and Oil India (OIL), sitting on a majority of nominated fields.
At present, the notified gas price of $6.1 per metric million British thermal unit (mmBtu) is up from $2.9 per mmBtu during the October-March period.
Based on estimates, the break-even price for the ongoing and planned projects of ONGC are in the range of $5-9 per mmBtu.
“The move will be helpful to not just ONGC and the nomination fields, but to the entire natural gas segment in the country. When all the natural gas produced in the country is sold on the IGX, it will boost domestic production,” said R S Sharma, former chairman and managing director, ONGC.
IGX was set up by the Indian Energy Exchange two years ago.
There are concerns, however, around the free pricing plans.
“They will impact the subsidy on fertilisers, in turn shooting up if prices are market-driven. The city gas segment, which is getting natural gas based on the Rangarajan formula, may also feel the squeeze. From the oil and gas sector, the big beneficiaries will be ONGC and OIL since most of their production is from the nomination fields,” said Prashant Vasisht, vice-president and co-group head, ICRA.
The Aayog’s plans also recommend the creation of a special purpose vehicle, with a pool of funds to be created by state-run companies and equal share by the government to boost the exploration sector. This may also include the engagement of an international partner as an executing agency. On successful exploration, this partner may be given participating interest in the block. This pooling of funds is to reduce risk by only one company.
For the upcoming Open Acreage Licensing Policy rounds, the Aayog favoured the creation of a special cell within the Directorate General of Hydrocarbons that would get all clearances in advance from defence, environment, and forest departments, before the blocks are bid out.
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