New gas fields get a leg-up with free pricing; Cabinet approves standard bidding norms

The Cabinet on Wednesday approved standard bidding norms to discover the prices of gas from new and upcoming fields. The move is aimed at augmenting production from these fields and reduce imports of the natural resource.

These fields had already been given considerable pricing and marketing freedom via separate fiats over the last four years. However, there existed a lack of uniformity of bidding guidelines.

Currently, the new fields (those other than the nominated fields) make up for less than fifth of the natural gas produced in the country, but these are expected to increase their share significantly in the coming years.

“The policy aims to provide standard procedure for sale of natural gas in a transparent and competitive manner to discover market price by issuing guidelines for sale by contractor through e-bidding,” the government said in a statement.

Of course, the gas pricing formula for nominated fields — which currently produces most of the domestic gas — will continue to be enforced.

The new bidding mechanism will impact the prices of fuel from the Krishna Godavari (KG) Basin in the east coast, where companies like Reliance Industries (RIL), BP and state-run ONGC are developing new gas production projects. The director general of hydrocarbons will lay out the details of the bidding process.

“The cost of natural gas production in the KG basin varies from $4 to $8 per million British thermal unit (MBTU), while the selling price of the gas currently varies from $2.7-7.7 per MBTU in FY18, depending upon the kind of production blocks.

“The policy will bring uniformity in the bidding process across the various contractual regimes and policies to avoid ambiguity and contribute towards ease of doing business,” Union petroleum and natural gas minister Dharmendra Pradhan said.

Indigenous natural gas production caters about 51% of the country’s requirements. With oil and gas production becoming increasingly unviable for energy companies, domestic natural gas output fell 2.8% year-on-year (y-o-y) to 31,168.4 million standard cubic metre/day (MSCMD) in FY20, reversing the growth trend recorded since FY18.

Incentivising new fields can bring in another 14,600 MMSCM gas in production, which will reduce imports, Pradhan added.

The Union government recently slashed domestic gas prices from nominated fields by 25.1% to $1.79/mBtu as higher production and coronavirus-induced low demand has suppressed global gas prices.

Price of natural gas from nominated fields is computed as per the 2014 guidelines. However, in case of natural gas produced from deepwater, ultra-deep water and high pressure-high temperature, pricing freedom is allowed subject to a ceiling.

According to the changes made in the Hydrocarbon Exploration and Licensing Policy, marketing and pricing freedom was also given to gas developers of newly discovered fields. Blocks whose field development plan (FDP) had been approved after February, 2019, were permitted to sell through competitive bidding. The new bidding mechanism will be effective for all such production which enjoy pricing freedom.

The Cabinet also approved the revised cost estimate of Rs 8,575 crore for construction of Kolkata East West Metro Corridor Project to connect Kolkata city and surrounding urban localities. The project, being implemented by Kolkata Metro Rail Corporation, envisages construction of a Metro corridor between Salt Lake Sector-V to Howrah Maidan in West Bengal, for a total route length of 16.6 km. The pre-pandemic target for completion of the project was December, 2021.

The mega project envisions creation of an efficient transit connectivity between business district of Kolkata with industrial city of Howrah in west and Salt Lake City in east through a safe, accessible and comfortable mode of public transport.