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A panel led by the Niti Aayog vice chairman is actively considering free-market pricing for natural gas produced from all fields, a major market-friendly reform that oil companies say is necessary to boost domestic output.
The oil ministry has already told the panel that such a move is necessary as it will help companies such as ONGC, Reliance Industries and Vedanta significantly step up output. If approved by the Cabinet, this would eliminate the current pricing formula that is often blamed for under-exploitation of the country’s gas fields and declining output.
The panel was set up in October after rocketing oil prices and a battered rupee drove up the import bill and drew the government’s attention to stagnant domestic oil production. The committee has been tasked with recommending measures to vitalise India’s exploration and production sector.
The panel, comprising the Niti Aayog vice chairman, its CEO, the Cabinet secretary, economic affairs secretary, petroleum secretary and ONGC chairman, is expected to shortly submit its report to the Prime Minister’s Office.
The committee is consulting state-owned and private sector producers, the regulator, service providers and other stakeholders to prepare a blueprint for boosting local output. It is considering measures such as permitting private sector involvement in ONGC’s fields, tweaking exploration licensing norms, and curtailing scope for bureaucratic interference.
“The government is clear local production must rise. Our energy requirement is rising and if we fail to raise output, our import dependence will go up,” said an official, seeking anonymity. “If prices are an obstacle, we must overcome this.”
But the official warned of likely hurdles. “An election year has its own challenges. It can test a government’s resolve on key matters. There is a fear the matter can get politicised and the plan may get stuck.” The oil ministry had previously pushed for allowing all local gas to trade on a soonto-launch exchange so that market rates are discovered.
The current gas pricing method is based on a fouryear-old government-set formula that takes average rates from global trading hubs to determine domestic prices twice a year. The formula price — currently at $3.36 per million metric British thermal unit (mmBtu) — has often been criticised by producers as being too low to attract investments in the upstream sector.
Producers can charge market rates for gas from deep sea and other difficult fields but rates must stay below a government-prescribed ceiling that’s linked to the prices of alternative fuels. The price ceiling, currently at $7.67 per mmBtu, has always been more than double the ordinary price and helped attract investments worth billions of dollars in gas production.
Falling local production — April-October output shrank 1% from last year — is increasing the country’s dependence on imported liquefied natural gas, which is about half of total consumption. The government is aiming to turn India into a gas-based economy by pushing up production twoand-a-half times by 2030, which would help raise the fuel’s share in the country’s energy mix to 15% from the current 6%.
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