Editorial: Running out of gas

Dec 17 2013, 05:05 IST
Comments 0
SummaryA year later, Rangarajan formula still not notified

Given that the government has not even announced the dates for the next round of the auctions under the New Exploration and Licensing Policy (NELP), and that the actual rounds will now almost certainly be pushed into the next financial year—various environmental clearances for the fields are yet to come through—it can be argued that it has enough time to notify the Rangarajan formula on gas prices. The problem, however, is that with the delays mounting, investors are certain to get edgy. After all, the Rangarajan report that sought to bridge the gap between a fixed price of natural gas and free-market pricing was submitted to the Prime Minister last year in December, after which it took more than six months for the Cabinet to clear the use of the formula. It has been more than five months since, and the formula has not even been notified, largely because the government was grappling with the issue of whether RIL should be allowed to get this higher value despite its alleged short-supply of gas—what are investors to think?

Indeed, given that several oil companies, including the state-owned ONGC, had made it clear they could not explore for gas in the deep seas at the Rangarajan-mandated prices which would work out to around $7 per mmBtu today, what the government needed to do was to come out with a post-Rangarajan roadmap towards free-market pricing. A committee under Vijay Kelkar has been tasked with developing this roadmap, but if the Rangarajan report is anything to go by, it could be a very long time before Kelkar’s recommendations, whatever they are, are notified. Till such time that exploration companies have a firm fix on what the pricing for gas will be, or that the government is even serious about sticking to what is in the contract—under NELP, both oil and gas pricing is supposed to be market-determined even today—it is difficult to see how too many firms are going to bid for known gas areas. Given India is estimated to have 300 tcf of gas reserves and that even producing a third of this would yield a value of $1.5-2 trillion, that’s a huge opportunity we’re letting slip away.

Ads by Google
Reader´s Comments
| Post a Comment
Please Wait while comments are loading...