Updated: October 18, 2014 6:18:49 pm
The NDA government on Saturday would approve a new domestic gas pricing policy with a modified pricing formula than what was approved by its predecessor, but would not give the new price benefit to Reliance Industries Limited until the issue of supply shortfall is resolved.
“The matter relating to cost recovery on account of shortfall in envisaged production from D1, D3 discoveries of Block KG-DWN-98-3 is under arbitration. Hence the operator (RIL) would be paid the earlier price of $4.2 per million British thermal units till the shortfall quantity of gas is made good,” says the proposal to the Cabinet Committee on Economic Affairs.
“It is proposed that the difference between the revised price and the present price ($4.2 per mBtu) would be credited to the gas pool account maintained by GAIL India and whether the amount so collected is payable or not, to the contractors of this Block, would be dependent on the outcome of the award of pending arbitration and any attendant legal proceedings,” it adds.
The new pricing, as determined under the proposed formula, would be available for the National Oil Companies (NOCs) including the gas which is produced from nomination fields.
After the NDA government took over, a decision was taken to defer the Domestic Natural Gas Pricing Guidelines, 2014 and to get it examined by a Committee consisting of Secretaries of Power, Expenditure and Fertilizer and Additional Secretary from Petroleum and Natural Gas as member Secretary.
The Committee recommended a new formula based on a modification of the Rangarajan formula by
(i) Removing both the Japanese and Indian LNG import components from the original formula.
(ii) Considering Alberta Gas Reference price in place of Henry Hub Prices for Canadian consumption.
(iii) Considering Russian actual price in place of National Balancing Point price for the Russian consumption considered under Former Soviet Union (FSU) countries.
(iv) Appropriate deductions on account of transportation and treatment charges, etc., for different hub prices.
(v) And allowing only bi-annual or annual price revision instead of Rangarajan’s quarterly revision.
The CCEA would also approve that the periodicity of price determination/notification shall be half yearly. “The price and volume data used for calculation of applicable price shall be the trailing four quarter data with one quarter lag.”
The first price, therefore, would be determined on the basis of price prevailing between 1stJuly, 2013 and 30th June, 2014. This price would come into effect from 1st November, 2014 and would be valid till 31st March, 2015.
Thereafter, it would be revised for the period 1st April, 2015 to 30th September, 2015 on the basis of prices prevalent between I” January, 2014 and 31st December, 2014, i.e., with the lag of a quarter and so on. The prices would be announced 15 days in advance of the half year, for which it is applicable.
The price so notified would be applied on Gross Calorific Value basis as input prices instead of net calorific value used earlier.
“The revised gas price, so determined, would be applicable to all gas produced from nomination fields given to ONGC and OIL India, NELP blocks, such Pre-NELP blocks where production sharing contract provides for Government approval of gas prices and CBM blocks,” says the proposal.
However, there would be exceptions to which this new pricing would not apply:
(a) Small and isolated fields in nomination blocks, given their peculiar conditions, guidelines for pricing of gas were issued in 2013 would continue to apply.
(b) Where prices have been fixed contractually for a certain period of time, till the end of such period.
(c) Where the PSC provides a specific formula for natural gas price indexation/fixation.
(d) Such Pre-NELP blocks where Government approval has not been provided under the Production Sharing Contract (PSC).
After this decision, all discoveries in Ultra Deep Water Areas, Deep Water Areas and High Pressure-High Temperature areas, would get a premium on the gas price to be determined as per the prescribed procedure.
In the northeastern region, the 40 percent subsidy would continue to be available for gas supplied by ONGC/OIL. However, as private operators are also likely to start production of gas in NER, and would be operating in the same market, this subsidy should also be available to them to incentivize exploration and production.
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