The government on Wednesday came out with a new model of granting marketing and pricing freedom for natural gas producers in India, with the Union Cabinet clearing a standardised e-bidding process for price discovery from new production areas and high-pressure and high-temperature areas.
Through the new platform, market players and consumers will discover the prices for new production areas that obtained clearance under the government's field development plan after February 2019. "Gas produced from high-pressure and high-temperature areas, coal-bed methane blocks, North East region and new discoveries will be getting this marketing freedom. This will be a major step towards ease of doing business measures taken by the government," said Dharmendra Pradhan, minister of petroleum and natural gas.
Pradhan added that the move will help in bringing at least 40 million metric standard cubic meter per day (mmscmd) of natural gas from Krishna Godawari basin alone.
As per the regulations, producers will not be allowed to participate in the bidding process. However, their affiliate companies can participate in the price-discovery initiative. All these new discoveries will be governed by the new e-bidding mechanism and affiliate marketing mechanism, that will be managed by the Directorate General of Hydrocarbons (DGH).
"At present, the country produces around 84 mmscmd of natural gas and we import almost the same amount. The new pricing mechanism will help in coming up with 40 mmscmd additional productions in KG basin only.
This will reduce our dependency on natural gas imports," Pradhan added.
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The new pricing platform will not have any impact on existing pricing formula for natural gas under the Administered Price Mechanism (APM), that the government came out with in November 2014. The capping on prices for difficult fields will also continue in the existing format, the minister said. This comes after the prices touched a historic low of $1.79 per million metric British thermal unit (mmBtu) for the October to March period of the current financial year, down 25 per cent from $2.39 per mmBtu during the April to September period.
The minister added that the new standardised e-bidding process for price discovery will help the industry boost the planned investment of around Rs 4 trillion in gas infrastructure in the next five to eight years. "Äs a fruit of this reform, we are going to get clean energy at a proper market-determined pricing," the minister added.
The government has also reduced the ceiling price for gas produced from deepwater, ultra-deepwater and high pressure, and high-temperature areas by 28 per cent to $4.06 per mmBtu for the period under review, as compared to $5.61 per mmBtu during the April to September period of 2020. The current prices are the lowest in last six years, since the new pricing system was implemented in November 2014. Pradhan did not respond to questions on whether there is a plan to set a floor pricing for domestic natural gas in India.
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