Arguing that aligning domestic energy prices with global prices is a must to contain underpricing of energy produce in the economy, the government has said that it is working in this direction. The statement could provide an incentive to foreign companies to invest in the sector again.
Economic Survey 2012-13 has noted that efforts are on to review the states’ existing contractual obligations with natural gas producers to decide whether they can sell their produce at market prices.
A committee set up by the Prime Minister’s Office under C Rangarajan has suggested a five-year time frame within which, to align domestic natural gas prices with international prices (Henry Hub). The Survey notes that mis-alignment of energy prices is leading to huge untargeted subsidies. It also leads to under-pricing for the producer that reduces his incentive and ability to invest in the sector and increases reliance on imports.
“The government is reviewing pricing under the price sharing contract to clarify the extent to which producers will have the freedom to market the gas,” the Survey notes. As on March 2011, India’s estimated natural gas reserves were 1,241 billion cubic metres as per petroleum ministry estimates.
Foreign direct investment (FDI) in oil and gas exploration have, however, taken a hit owing to persisting global risks and depressed business sentiments. FDI in petroleum and gas have dipped by 89 per cent during April-November this financial year against 68 per cent decline in the power sector.
Currently, the operators are free to sell gas produced from blocks given to them under the New Exploration Licensing Policy (NELP) with their pricing subject to government vetting. But producers like Reliance Industries, Cairn and ONGC want better price realisation for their output as the present method yields a lower than global price.
The petroleum ministry is planning to take a proposal for increasing the price of locally produced natural gas to $8-8.5 per mmBtu. Simultaneously, the Rangarajan committee is learnt to have asked the Centre to do away with the existing production sharing formula for excavation of gas, and substitute it with the sharing of revenue between the contractor and the government.
The average natural gas production in 2011-12 was 130 million metric standard cubic metre per day which was about 9 per cent lower than the previous year mainly due to lesser production from the KG–D6 basin.