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Govt may let market set prices for gas, oil

business Updated: Nov 16, 2015 23:23 IST
HT Correspondent
HT Correspondent
Hindustan Times
Oil and gas prices

The government has proposed a free natural gas pricing regime and the introduction of a revenue sharing model to replace the production sharing contract (PSC) regime used at present.(File Photo)

In a bid to incentivise future exploration of hydrocarbon fields in the prevailing low price scenario, the government has proposed a free natural gas pricing regime and the introduction of a revenue sharing model to replace the production sharing contract (PSC) regime used at present.

This model, if approved, would be applicable to all future auctions of oil and gas blocks.

The oil ministry floated a public consultation paper on Monday, in which it also proposed a uniform licensing policy, which would allow companies to explore everything from oil and gas to shale oil and gas and coal bed methane (CBM). At present, conventional exploration is governed by the so-called New Exploration Licensing Policy (NELP), while CBM has a separate policy. Shale oil and gas exploration is not covered under any structure as of now.

Several domestic and foreign explorers, including Reliance Industries Ltd (RIL), BP Plc (British Petroleum) and the government-owned ONGC Ltd have been demanding market-determined gas pricing. Interestingly, the paper comes just a day after Canada-based Niko Resources said it had decided to exit RIL’s gas block off the Odisha coast.

In September, the government had notified a similar policy for the exploration of 69 marginal fields, which had been relinquished by public sector companies- ONGC and Oil India, as they were deemed non-profitable under the PSC model.

“In the recently announced marginal field policy, the government has provided pricing and marketing freedom for the natural gas. 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 regime in order to incentivise production,” the consultation note said.

Last year, the government finalised a formula, based on which domestic natural gas prices are revised every six months. On September 30, the domestic price went down 18% to $3.82 per units (MBTU) on gross calorific value basis mirroring a sharp decline in international prices.

The government has sought comments from companies by the end of the month.