Measures taken by the government recently will remove some impediments holding back investment in exploration and production. Pricing and marketing of produce also need to be unshackled Despite offering an attractive policy environment under the New Exploration and Licensing Policy (NELP) and the Hydrocarbon Exploration and Licensing Policy (HELP), also known as the Open Acreage Licensing Policy (OALP), exploration and production (E&P) of oil and gas hasn’t picked up on the required scale. A major bottleneck has been regulatory hurdles which the government is now trying to address. Three important measures have been implemented by the Union government in recent times to remove regulatory and procedural hurdles faced by E&P companies. One, 0.67 million sq km sedimentary basin lying offshore,...
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Category: Oil & Gas
New gas pipeline tariff is flawed
There is no harm in helping areas at a locational disadvantage. But the problem arises when it is done using the tariff mechanism Under the zone-wise unified tariff for natural gas (NG) pipelines effective from April 1, 2023, and announced by the downstream regulator Petroleum and Natural Gas Regulatory Board (PNGRB), consumers will pay a uniform charge for transportation of NG within a tariff zone irrespective of their location. There are three tariff zones defined as per the distance from the gas source — up to 300 km, 300-1,200 km and greater than 1,200 km. This is a drastic shift from the extant system of tariff determination under which they pay different tariffs depending on the pipeline operator with whom they...
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Has the government shelved reforms in gas pricing?
The revision of the gas pricing formula is in line with the recommendations of the Kirit Parikh committee but the government is silent on deregulating prices from 2027 The shift to link the price of natural gas with the crude oil price is unwarranted as natural gas is not a replacement for crude oil. The government made two significant changes in the revised pricing policy for domestic natural gas produced from legacy fields. One, it linked the price of natural gas to the basket of Indian crude oil instead gas prices at global hubs. Two, it introduced the concept of a price band. Legacy fields are nomination fields, blocks given under New Exploration Licensing Policy (NELP) and pre-NELP blocks. It...
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Banish those thoughts of LPG subsidy ending in the near term
LPG subsidy is here to stay notwithstanding proclamations by successive governments to end it. This is because actions on the ground are driven by populism, not economics Subsidy on LPG is the excess of its cost of supply over the price paid by the beneficiary. (Representative image) In the Union Budget for 2023-24, finance minister Nirmala Sitharaman has kept the budget estimate (BE) for petroleum subsidy – primarily subsidy on liquefied petroleum gas (LPG) for household consumption – for 2023-24 at a mere Rs 2,257 crore. The subsidy on the purchase of a product is a financial assistance given by the state to persons who cannot afford to pay the market-based or cost-plus price. Subsidy on LPG is the excess...
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Exit from LPG subsidy, completely
In June 2020, the Government stopped giving LPG subsidies. It is time to do away with the hidden subsidy on the cylinder for better fiscal management In the Union Budget for 2023-24, finance minister Nirmala Sitharaman has shown an expenditure of Rs 9,170 crore on petroleum subsidy (this is primarily a subsidy on LPG for household consumption) during 2022-23 as per the revised estimates (RE). She has kept the budget estimate (BE) for 2023-24 at Rs 2,257.09 crore. By definition, a subsidy on the purchase of any given product is financial assistance given by the state to a certain class of persons who cannot afford to pay the market-based or cost-plus price from their limited income. Subsidy on LPG is...
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Cap natural gas prices to control rising fertiliser subsidy
The government should continue with the extant formula for the pricing of natural gas as per November 2014 guidelines The pricing of domestic gas presents a mix of administrative control and market forces. A major reason why fertiliser subsidy zoomed to Rs 2.25 lakh crore in the revised estimate (RE) of 2022-23 against the budget estimate (BE) of Rs 1.05 lakh crore was the sharp increase in the price of natural gas, which accounts for over 80 percent of the production cost of urea. Almost all manufacturing of urea in India is based on natural gas. India consumes 59.5 billion cubic metres (bcm) of natural gas annually. Of this, nearly 54 percent, or 32.13 bcm, is produced domestically, and...
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Delink pricing of natural gas, crude
An annual increase of $0.5 per mmBtu is consistent with its proposal to offer free pricing beginning January 1, 2027 In September 2022, the Ministry of Petroleum and Natural Gas (MPNG) formed a committee led by Dr Kirit Parikh to review the current pricing formula for domestically produced natural gas (NG) and make recommendations to restructure the formula in order to ensure “a fair price to the end consumer.” It has recommended linking the price of NG from legacy fields to the price of imported crude oil with a floor and ceiling. The floor price will be $4 per million British thermal units (mmBtu), and the ceiling price will be $6.5 per mmBtu, with an annual increase of $0.5 per...
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Sanctions on Russia can be suicidal for G7
G7 needs to recognise that actions that restrict flow of goods and services are bound to be counter-productive In a bid to punish Russia for its military action against Ukraine, leaders of G7 viz., the United States, Germany, France, Britain, Italy, Canada and Japan in June this year vowed to explore the feasibility of measures to bar imports of Russian oil above a certain level. In September, 2022, their finance ministers (FMs) said: “They confirm our joint political intention to finalise and implement a comprehensive prohibition of services, which enable maritime transportation of Russian-origin crude oil and petroleum products globally. Providing those services would only be allowed if the oil and petroleum products are purchased at or below a price...
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High fuel cost: Onus lies on Centre, states
For six months the prices of petrol, diesel have remained unchanged, resulting in heavy losses for refiners Ever since the start of the Ukraine war in February 2022, the international price of oil has been on the boil. Considering that India imports 85 per cent of its oil requirements, this is bound to impact the domestic price of petroleum products (POL). But the Modi government has ensured that the retail price of petrol and diesel have remained unchanged for a record six months. Around 90 per cent of the domestic fuel retail network in the country is controlled by the three Central public sector undertakings (CPSUs) namely, Indian Oil Corporation Limited (IOCL), Bharat Petroleum Corporation Limited (BPCL) and Hindustan Petroleum...
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Govt must take fresh look at gas pricing
The rising cost of natural gas has become a new challenge for key sectors such as fertiliser and power Faced with steep rise in the international prices of natural gas or NG triggered by Ukraine war and disruption in global supplies, and its attendant impact on cost of energy to industries across several sectors especially most sensitive ones such as fertilizers, power, etc., the Ministry of Petroleum and Natural Gas (MPNG) has set up a committee under Dr Kirit Parikh to review the current pricing formula for domestically-produced NG. Out of 54.6 billion cubic meter or bcm consumed in the country, nearly 50 per cent is met from imports such as liquefied natural gas or LNG. Mandated to restructure the...
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