In a move likely to revive investment interest of global energy companies in India's oil and gas sector, finance minister P Chidambaram's budget speech for 2013-14 said the government will review its natural gas pricing and oil exploration policies.
As part of his initiative to boost India's energy security, he said a new policy to encourage exploration and production of shale gas will be announced.
Despite a huge increase in global gas prices-currently ruling at around $14-16 per unit, the price of domestic gas has been frozen at $4.2 a unit for the last five years. As a result, companies like RIL, BP as also state-owned firms like ONGC are going slow on their investment plans to produce more gas from country's oil and gas fields.
If recommendations of the Rangarajan committee, which has given its report on gas pricing, are accepted, domestic gas prices are expected to be in the range of $7-8 per unit, almost double of current price of domestic gas.
While the announcement to review the natural gas pricing policy will remove uncertainties regarding pricing, it should also bring back investments in the sector and reduce India's dependence on gas imports every year. However, an increase in gas prices will also have an adverse impact on core sectors such as power and fertilisers that consume huge quantities of gas.
"We welcome the focus on regulatory and pricing clarity for the E&P industry announced in the budget today," said Sashi Mukundan, BP's country head for India. "A key next step should be transition of prices of domestic natural gas to import parity in next three years, similar to the diesel price reforms."
Chidambaram also said that India's oil and gas exploration policy (New Exploration Policy-NELP) under which the government awards oil and gas exploration blocks will be reviewed to shift contracts from profit sharing to revenue sharing.