BackOil minister clarifies on premium on gas price
Premium to be given only to developers of new blocks; ministry currently working on premium to be offered
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Mumbai: In a blow to the expectations of a gas price premium on existing deepwater fields of Reliance Industries Ltd (RIL) and Oil and Natural Gas Corp. Ltd (ONGC), oil minister Dharmendra Pradhan clarified on Friday that the premium will be given only to developers of new blocks.
The oil ministry is currently working on the extent of premium to be offered to the companies and will be making an announcement in the next few weeks, he said.
“As on today, the premium will only be given on blocks which are yet to be discovered. A decision in this regard will be made shortly," said Pradhan.
He was talking to the media on the sidelines of an event held in Mumbai.
The clarification given by the minister essentially means that the premium will not be applicable to the deepwater blocks of RIL in the Krishna-Godavari (KG) basin, primarily its MJ1 discovery located 2km below the D1 and D3 fields in the D6 field of the company. Even the company’s R-Series and Satellites fields are also a part of the deep water fields.
RIL, which is currently producing 11 million metric standard cu. m per day (mmscmd) of gas against a target of 80 mmscmd, has always maintained that the company will not be able to invest in augmenting production in the future unless it gets market-linked gas price.
The government’s stand also excludes ONGC’s natural gas bearing D5 block in the KG basin where the company is planning to invest up to $10 billion.
In October last year, the oil ministry had announced a new gas pricing formula for existing gas producing blocks in the country. It had also said that the blocks operating in deep waters and at high temperatures and high pressures (HT/HP) will be offered a premium.
“The current macro environment of crude oil prices and its subsequent impact on natural gas prices will bring down the price of natural gas in India to lower than $4 per mmBtu (million metric British thermal units). At such low prices, producing natural gas from deep water blocks is not viable at all," said an oil and gas consultant with a US-based consultancy firm.
The government has to take advantage of the low crude oil prices to bring in sweeping reforms to the Indian oil and gas sector, he said, requesting anonymity.
The current natural gas price in India is at $5.1 per mmBtu and is expected on come down to $3.6 per mmBtu when the price is revised in end September. This will be much below the $4.2 per mmBtu that the companies were getting until last year.
Pradhan, while talking to the media, acknowledged that concerted efforts are needed from the government in the oil and gas sector.
“We are working on a comprehensive policy for fresh bidding of oil and gas blocks in the country. By the end of the current fiscal, a policy and a model for fresh round of bidding will be announced," he said.
The government, however, will ensure that the bidding for marginal fields, largely held and undeveloped by ONGC, happens before the auction of fresh oil and gas blocks.
Marginal fields are oil- and gas-bearing fields that were allotted to ONGC and Oil India Ltd. Owing to their small size, their geographical location and non-remunerative oil and gas prices in India, these fields were left undeveloped after their discovery. Currently, there are 69 such fields that the government wants to cluster together into groups of three-four fields and auction them.
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