Pricing, marketing freedom to help monetise gas reserves worth over $28 bn

The Cabinet Committee on Economic Affairs, chaired by the Prime Minister Narendra Modi, has approved a proposal to grant marketing, including pricing, freedom for the gas produced from high pressure high temperature, deep water and ultra deepwater areas.

The decision will help monetise reserves of the order of 6.75 trillion cubic feet (or 190 BCM or around 35 mmscmd) and help bring to production associated reserves valued at $28.35 billion (Rs1,80,000 crore).

The marketing freedom so granted would, however, be subject to a ceiling price arrived at on the basis of landed price of alternative fuels.

The policy guidelines would be applicable to future discoveries as well as existing discoveries, which are yet to commence commercial production as of 1 January 2016.

However, in case of existing discoveries, which are yet to commence commercial production as of 1 January 2016, and there is pending arbitration or litigation filed by the contractors directly pertaining to gas pricing covering such fields, this policy guideline will be made applicable only on the conclusion/ withdrawal of such litigation/arbitration and the attendant legal proceedings.

All gas fields currently under production will continue to be governed by the pricing regime which is currently applicable to them.

The ceiling price in US dollars per mmbtu (GCV) shall be the lowest of the (i) Fuel oil import landed price (ii) Weighted average import landed price of substitute fuels (0.3 x price of coal + 0.4 x price of fuel oil + 0.3 x price of naphtha) and (iii) LNG import landed price, whichever is lower.

The landed price-based ceiling will be calculated once in six months and applied prospectively for the next six months. The price data used for calculation of ceiling price in US dollars per mmbtu (GCV) shall be the trailing four quarters data with one quarter lag. Director General of Petroleum Planning and Analysis Cell (DG, PPAC) under the ministry of petroleum and natural gas will notify the periodic revision of gas price ceiling under these guidelines.

The decision is expected to improve the viability of some of the discoveries already made in such areas and also lead to monetisation of future discoveries as well. It is estimated that the decision will help monetize reserves 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 (Rs1,80,000 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.

The decision is expected to result into monetisation of the 28 discoveries, which can result into substantial investment by the contractors.

There would be substantial employment generated during the development phase of these discoveries and a part of it would continue during the production.
ONGC has estimated that in the development of discoveries in the block KG-DWN-98/2, there would be deployment of 3,850 direct skilled labours. Besides, these there would be around 20,000 persons required during the construction phase.

GSPC is currently deploying around 690 personnel in the KG-OSN-2001/3 block.

Government will not interfere in the price fixation for every block covered under the policy. There is, however, a provision of ceiling to balance the requirements of consuming sectors.