Govt gives ONGC, OIL freedom to price natural gas

The government has given national oil firms ONGC and OIL freedom to price any additional natural gas produced from blocks given to them on nomination basis at market rates. So far, all gas -- current and future -- produced from blocks given to Oil and Natural Gas Corporation and Oil India Ltd was priced at government-controlled rates, called administered price mechanism.

The petroleum ministry, in an order dated May 31, has now made a distinction between existing producing fields and new ones in the nomination blocks.

"ONGC and OIL would have the freedom to sell any production from new fields in their nominated blocks at non-APM rates," the order said.

Even the price of APM gas from June 1 has been more than doubled to $4.2 per million British thermal units, at par with the rate at which Reliance Industries sells gas from its eastern offshore KG-D6 fields.

"It has been decided that the price of APM natural gas produced by national oil companies be fixed at $4.2 per mmBtu less royalty.

"Hence, the APM price inclusive of royalty (to customers) would be $4.2 per mmBtu," the order said.

APM gas prior to June 1 was sold at Rs 3,200 per thousand cubic metres or $1.79 per mmBtu.

For customers in the North-East, the net consumer price would be 60 per cent of the new rate, i.e., $2.52 per mmBtu.

"The difference would be paid to ONGC and OIL through government budget." The government has also made a significant departure from the previous practice of pricing natural gas in rupees and has now decided to price it in dollars.

"The price (of $4.2 per mmBtu) would be converted to Indian rupees per thousand cubic metres (mscm) at the Reserve Bank of India reference exchange rate of the month previous to the month during which supply of APM gas is made.

The price in rupees per mscm would be adjusted every month on the basis of RBI reference exchange rate," the order said.

This rate would be excluding cess, transportation charge, marketing margin/service charge and taxes.

"As regards existing producing fields, the production of ONGC and OIL from these, including any additional production, would be considered as APM gas and sold at APM rate," the order said.

The order said the government has also decided that company marketing the APM gas, GAIL India Ltd, has been allowed to charge a marketing margin of Rs 200 per mscm.

"The sale of APM and non-APM gas produced from nominated blocks would be in accordance with government's decisions regarding commercial utilisation of gas," the order said.

In case of reduction in availability of APM gas, supplies to customers would be reduced on a pro-rata basis.

To meet the deficit in supply of APM gas, GAIL and other oil marketing companies marketing non-APM natural gas would supply non-APM gas, subject to availability and connectivity, to connected APM customers on priority, provided they are willing to pay the higher non-APM price, it added.

The Cabinet had last month approved the raising of gas price from Rs 3,200 per thousand cubic metres ($1.79 per million British thermal units) to Rs 6,818 per thousand cubic metres ($3.818 per mmBtu).

After adding royalty, the price for user industries would be Rs 7,500 per thousand cubic metres (Rs 7.5 per cubic metre) or $4.2 per mmBtu.

The hike in gas price would also lead to a rise in the cost of fertiliser production and power generation.

However, fertiliser prices will not increase as the government subsidises the sector.

The increase in power tariffs would be marginal as only 11 per cent of the total electricity generated in the country comes from gas-based power projects.

And, of these, only one-third use the gas with the increased price tag. ONGC and OIL would gain about Rs 5,000 crore (Rs 50 billion) and Rs 700 crore (Rs 7 billion) in revenue respectively because of the gas price increase.

GAIL India, which has been allowed to charge Rs 200 per thousand cubic metres or 11.2 cents per mmBtu as marketing margin, would gain Rs 150-200 crore (Rs 1.5-2 billion) in revenue annually.

State-run ONGC and OIL produce 54.32 million cubic metres of gas per day -- about 40 per cent of the total amount originating from the country -- through fields given to them on a nomination basis.