The government’s proposal to allow natural gas producers to freely market their produce at market-linked prices may not seem transformational, especially in an era of depressed hydrocarbon prices, yet the move is expected to incentivise domestic gas production from deep-sea assets. Since associated costs have also come down in the ongoing slowdown, many fields in challenging geography are likely to become viable. As a part of India’s drive towards self sufficiency, the government is considering to provide “calibrated” marketing freedom to gas producers while topping it further with freedom to price it at a level which is equivalent to the imported price of LNG. Besides ONGC and GSPC, the private explorer Reliance would directly benefit from such a favorable policy as all of them have made massive investments in India’s gas rich Krishna-Godavari (KG) basins. “The government has clearly worded that these incentives would be applicable to new production which means that gas discoveries made by ONGC and Reliance in KG basins would also be the recipient of these benefits,” says R.S. Sharma, head of FICCI Hydrocarbon Committee and former ONGC chairman.
Imported price of imported Liquefied Natural Gas (LNG), to which government wants to peg the new gas prices, currently stands at about $7 per unit “which is a good price to make production viable even from the challenging fields,” says Sharma. Most of India’s prospective gas discoveries lie in high seas involving greater exploration and production risks. Therefore, gas producers generally look for risk premium to offset those risks.
Many feel that this step marks the beginning of de-regulation as far as marketing and pricing of natural gas in the country is concerned. The government feels that such a shift in policy is required to encourage gas production from deep-water, ultra deep-water and high pressure-high temperature areas, which are presently not exploited on account of higher cost and higher risks. The oil and gas industry has long been demanding these incentives. Although both marketing and pricing freedom had been the banner highlights of India’s New Exploration Licensing Policy (NELP) but it was never extended to the oil and gas industry. India is blessed with rich natural resources including oil and gas, however, pricing of gas has been a major stumbling block in their discovery and production thus making hydrocarbons the biggest item of India’s imports.