The Government needs to re-look at the current pricing scheme for CBM production as it is not reaping returns. It must, instead, stick to extant formula-based guidelines The Cabinet Committee on Economic Affairs (CCEA) has approved marketing and pricing freedom to contractors/producers of coal-bed methane (CBM), or natural gas from coal seams, to sell it at arms length price in the domestic market. To discover arms length price, a contractor has to now follow a fully transparent and competitive bidding process from amongst users “with the objective that the best possible price is realised for the gas without any restrictive commercial practices”. This decision has come in response to a scenario, whereby producers such as, Reliance Industries Limited (RIL) and...
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Category: Oil & Gas
Gas pricing – stop that policy drift
The Cabinet Committee on Economic Affairs [CCEA] has approved marketing and pricing freedom to contractors/producers of coal-bed methane [CBM] – or natural gas from coal seams – to sell it at arms length price in the domestic market. To discover arms length price, a contractor has to follow a fully transparent and competitive bidding process from amongst users “with the objective that the best possible price is realized for the gas without any restrictive commercial practices”. In the event, he cannot identify any buyer, sale can be made to any of its affiliates. Royalty and other dues to the government, however, shall be payable on the basis of Petroleum Planning & Analysis Cell (PPAC) notified prices or selling prices, whichever...
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Impending oil shock – expedite subsidy reforms
After protracted battle within the bloc [as also with countries outside], members of the Organization for Petroleum Exporting Countries [OPEC] – a conglomeration of oil exporting nations from the middle east – have agreed to reduce their combined output by about 1.2 million barrels a day. Likewise, 11 non-OPEC countries led by Russia have decided to knock off over 500,000 barrels from their supplies. The agreement is effective from January 1, 2017. The agreement has to be viewed in the backdrop of a steep decline in the international price of crude oil from the peak of US$ 117 per barrel in June 2014 to a low of US$ 27 per barrel in February, 2016. During the current calendar, even though...
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Keep gas pricing formula-driven
On October 1, 2016, the Indian Government reduced the price of domestic gas by 18% to US$ 2.78 per million British thermal units [mBtu] on a net calorific value [NCV] basis. The public sector Oil and Natural Gas Corporation and Oil India Limited raised a hue and cry saying this is even lower than their cost of production at US$ 3.59 per mBtu/US$ 3.06 per mBtu. They want a “floor” below which the price should not be allowed to go. Their demand is flawed. Under the guidelines for domestic gas pricing in vogue since November 1, 2014, the price of this gas was based on a weighted average of prices at four global locations viz., Henry Hub [USA], NBP [National...
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Bias towards the rich
REINING IN LPG SUBSIDY : The Centre should get into a ‘surgical strike’ mode now and enforce exclusion of all rich/better-off from the ambit of LPG subsidy. Prime Minister Narendra Modi has made pronouncements several times that subsidies will be rationalised to take them away from the rich/better-off and given to the poor besides plugging leakages. While the government has made significant progress on the latter, there is little action on the ground in regard to the former (subsidies). In LPG distribution, the government has performed an extraordinary feat of virtually eliminating leakages and saving about Rs 15,000 crore annually under PAHAL (Pratyaksha Hastaantarit Laabh) for direct benefit transfer (DBT) of subsidy as under it, a record 30 million bogus...
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Gas pricing – keep it formula driven
Following the downward revision in the price of domestic gas by 18% to US$ 2.5 per million British thermal unit [mBtu] – on gross calorific value [GCV] basis – from October 1, 2016, the two public sector undertakings [PSUs] in the upstream oil & gas segment viz., Oil and Natural Gas Corporation [ONGC] and Oil India Limited [OIL] have raised a big hue and cry about its likely impact on continued viability of their operations. The ONGC/OIL duo have contended that the revised price at US$ 2.78 per mBtu on net calorific value [NCV] basis [corresponding to US$ 2.5 per mBtu on GCV] is even lower than their cost of production at US$ 3.59 per mBtu and US$ 3.06 per...
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Reining in LPG subsidy – ‘surgical strike’ needed
Hon’ble Prime Minister, N Modi has made pronouncements ad infinitum that subsidies will be rationalized to take these away from the rich/better-off and given to the poor besides plugging leakages. While, on the latter, the government has made significant progress, in regard to former, there is little action on the ground. Even in LPG [liquefied petroleum gas] where it has performed an extraordinary feat of virtually eliminating leakages and saving about Rs 15,000 crores annually under PAHAL [Pratyaksha Hastaantarit Laabh] for direct benefit transfer [DBT] of subsidy [under it, a record 30 million bogus/fictitious users were excluded from the list of beneficiaries], it has done little to meaningfully address the overwhelming bias towards the rich, much less eliminating it. According...
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Energy security at stake
THE GAS FIASCO In its report submitted in November, 2015, De-Golyer and MacNaughthon (D&M) – a consultant appointed by the Centre following the dispute between the Oil and Natural Gas Corporation (ONGC) and the Reliance Industries Limited (RIL) over alleged migration of gas from former’s oil field discoveries in KG basin to latter’s fields in the same basin off Andhra coast – estimated that 0.4 trillion cubic feet (tcf) of gas had migrated from ONGC’s ‘idle fields’ to RIL. Following this, the government set up a committee under Justice A P Shah in December, 2015 to examine the matter and recommend measures to be taken against RIL for “the unjust benefit” it received from the migration of gas taking in...
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Gas fiasco – India’s energy security compromised
In its report submitted in November, 2015, De-Golyer and MacNaughthon [D&M] – a consultant appointed by Union government [following dispute between Oil and Natural Gas Corporation’s [ONGC] and Reliance Industries Limited [RIL] over alleged migration of gas from former’s G4PML and D1/E1 discoveries in KG-DWN-98/2 to latter’s D1 and D3 fields in KG-DWN-98/3 off Andhra coast [better known as KG-D6]] – estimated that 0.4 trillion cubic feet [tcf] of gas had migrated from ONGC ‘idle fields’ to RIL. Following this, the government set up a committee under justice A P Shah in December, 2015 to examine the matter and recommend measures to be taken against RIL for “the unjust benefit” it received from the migration of gas taking in to...
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ONGC/OIL ‘unshackled’ – government must stay on course
For Oil and Natural Gas Corporation [ONGC] and Oil India Ltd [OIL] – central public sector undertakings [PSUs] in the business of oil and gas exploration and production, the year 2016-17 brings unprecedented cheer. The ministry of petroleum and natural gas [MPNG] has proposed that the government won’t be asking them to share the burden of subsidies on LPG and kerosene. To put things in perspective, a bit of background is in order. During 2004-2014, under directions from then government, ONGC and OIL offered discount on supply of crude to downstream oil PSUs viz., Indian Oil Corporation Limited [IOCL], Hindustan Petroleum Corporation [HPCL] and Bharat Petroleum Corporation [BPCL] to cover a portion of under-recoveries that latter incurred on sale of...
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