Govt puts gas under standard bidding route for transparent price discovery

In a big reform initiative, the government on Wednesday decided to put domestically produced gas under a standard price discovery mechanism to help scale up local production from fields of ONGC, OIL, Reliance and Vedanta and help create a uniform gas market.

Accordingly, the Union Cabinet approved a standard e-bidding procedure for market-based price discovery of gas across various contractual regimes.Petroleum Minister Dharmendra Pradhan said that under the new reform initiative, a standardised e-bidding mechanism will be suggested by upstream regulator Directorate General of Hydrocarbons (DGH) for transparent market-based discovery of gas price.

The regulator will also suggest a panel of e-bidding platforms to the producers. Gas producers will have a choice to opt for a platform and get the best market determined price for their gas.

With the changes in gas pricing regime, government hopes that its objective of developing a gas-based economy will get the necessary push. Pradhan said the changes will also help increase domestic gas production by an additional 40 million standard cubic meters a day (mmscmd), from the current 84 mmscmd.

Government has already given marketing and pricing freedom for gas from blocks awarded under the Discovered Small Field Policy (DSF), Hydrocarbon Exploration and Licensing Policy (HELP) and Coal Bed Methane (CBM) contracts, and discoveries from difficult fields such as deep water, ultra-deep water and high pressure-high temperature areas. The new changes approved by the Cabinet will allow gas from all such fields to discover pricing under a common e-bidding platform.

While allowing reforms in pricing, the government has left the existing production of gas from nomination fields untouched. Accordingly, such gas blocks would continue to be guided by a 2014 government-set formula that takes average rates from global trading hubs to determine domestic prices twice a year – in April and then in October.

Under this formula, the current gas price is at $1.79 per million metric British thermal unit (mmBtu) for the six-month period beginning October 1. Gas producers have been critical of this low pricing that adversely impacts investments in the upstream sector.

Pradhan said that under the new gas price discovery mechanism, the producing companies will not be allowed participate in the bidding process but its affiliate companies can participate.

India has already launched the country’s first online delivery-based gas trading platform – India Gas Exchange. It is also expected to play a big role in competitive price discovery for the natural gas that will come from different parts of the globe and from within India.

India is looking at investor friendly policies in oil and gas sector to attract investments that has remained miniscule for last several years. Due to this, domestic oil production has stagnated while gas production has not picked up in a big way. In fact, domestic gas output shrank by 5 per cent in FY20 and has fallen by about 18 per cent in the first two months of current fiscal pushing up the demand of relatively expensive imported liquefied natural gas. The government is aiming to increase gas production by two-and-a-half times by 2030, which would help raise the fuel’s share in the country’s energy mix to 15 per cent from the current 6 per cent.

At present, out of 310 exploration blocks awarded so far under various bidding rounds (discovered field, pre-NELP & NELP), 189 blocks/fields are operational. 17 blocks under nomination are being operated by ONGC and OIL.

Petroleum Exploration Licences (PEL) for domestic exploration and production of crude oil and natural gas were granted under four different regimes over a period of time: nomination basis — PEL, Pre-NELP discovered field, Pre-NELP exploration blocks and New Exploration Licensing Policy (NELP).

As many as 117 companies are operating in these blocks post the ninth NELP round. This has at least 11 public sector undertakings, 58 private firms and 48 foreign companies.