Government proposes to free natural gas pricing

The government today proposed to free natural gas pricing, with the current rates being considered too low to support exploration and production cost.

Additionally, the government also proposed to replace the controversial production sharing contract (PSC) with a simpler revenue-sharing regime for all future field auctions.

The government had in September allowed free pricing of the gas produced from 69 small and marginal fields it planned to auction shortly.

"In the recently announced marginal field policy, the government has provided pricing and marketing freedom for the natural gas," the oil ministry said today.

"On similar lines, it is proposed to provide pricing and marketing freedom for the natural gas to be produced from the areas to be awarded under the new contractual and fiscal regime in order to incentivise production from these areas," it added.

The ministry, which aims to rekindle interest in oil and gas exploration by simplifying rules, today invited comments from stakeholders on a consultation paper on new fiscal and contractual regime for award of hydrocarbon acreages.

International players like BP and private operators including Reliance Industries and state-owned Oil and Natural Gas Corp (ONGC) had been calling for pricing freedom as the current rates made new investments unviable.

A consultation paper floated by the ministry had called for full pricing and marketing freedom for gas, a revenue-share regime as against the current profit-share model, involving, the controversial provision of cost-recovery by operators.

It also proposed a single licence for exploration of all forms of hydrocarbons as also a system of allowing companies to select area for exploration.

The ministry had hinted at the reforms in early September, as it moved away from the production-sharing model to revenue-sharing regime for the auction of 69 small oil and gas fields without marketing or pricing restriction on operators.

For small fields, the changes were projected to have the potential of unlocking hydrocarbons treasure worth Rs70,000 crore.

In view of this  the potential of the latest proposals in the consultation paper for award of mainstream blocks would be many times more.