New pricing policy for Deep Sea Gas Fields

June 20, 2016 June 20, 2016

In March 2016, cabinet had approved new pricing formula for gas discoveries in difficult to access areas and difficult to operate geological areas.

Why there is a need for new pricing policy?

The present scheme of pricing is not enough to incentivize gas explorations in deep sea, ultra deep sea, high temperature and high pressure areas. The proposal for the adopting the new pricing policy was also stated in this year’s union budget. The new pricing policy will lead to increase in gas price by about 70-80% of the current levels and will help companies to begun exploration in these difficult areas. The move is expected to invite more investments into the country’s hydrocarbon sector. This decision has been taken at the backdrop of global energy companies cutting back their capital expenditure and workforce, which in turn has begun to adversely affect remittances from NRIs employed in the energy sector.

Who will be benefitted from the new pricing policy?

The new pricing policy will be applicable to the future as well as existing gas explorations. But, it is not applicable to the currently producing gas fields. The companies like Oil and Natural Gas Corp. Ltd (ONGC), Reliance Industries Ltd and Gujarat State Petroleum Corp. Ltd (GSPC) will be the prominent beneficiaries. They will be able to develop their deep sea discoveries as they can realize a price higher than what is prevalent now.

How the prices will be determined as per the new pricing policy?

The new price will be the lowest of weighted average of fuel oil and imported LNG or weighted average of fuel oil, naphtha and imported coal. Hence the new price is linked with the prices of landed cost of alternative fuels like oil, LNG and Naphtha. At present, it becomes difficult to predict what would be the gas price when the companies start production from deep sea blocks as the landed price of imported alternative fuels depends upon the market dynamics.