Category: Pricing Policies & Subsidies

Price control: The gas on gas price deregulation

Under a special package for deep/ultra-deep, high-pressure/high-temperature (HP/HT) fields announced in March 2016, the supplies therefrom are allowed ‘premium’ price, linked to the prices of alternate fuels, including fuel oil, naphtha, and imported liquefied natural gas (LNG). The government has initiated discussions to ‘lift price restrictions on domestically produced natural gas’. However, it intends to do it ‘gradually’. It wants to continue with regulated gas pricing for at least three more years. However, in the interregnum, producers will be given freedom to sell a portion of the total output under ‘negotiated pricing deals’ with their customers. Will it help? Under the guidelines in effect since November 1, 2014, for all domestic supplies from fields given under the new exploration and...
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Gas price deregulation – what is holding back

The government has initiated discussions to ‘lift price restrictions on domestically produced natural gas’. However, it intends to do it ‘gradually’. It wants to continue with regulated gas pricing for at least three more years. However, during the interregnum, producers will be given freedom to sell a portion of the total output under ‘negotiated pricing deals’ with their customers. Will it help? Under the guidelines in vogue since November 1, 2014, for all of domestic supplies from fields given under new exploration and licensing policy [NELP] as also blocks given on ‘nomination’ to Oil Natural Gas Corporation [ONGC] and Oil India Limited [OIL] under pre-NELP, the price [call it normal price] is a weighted average of prices at 4 international...
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Is the oil sector ready for competition?

Last year, Petroleum Minister Dharmendra Pradhan had set up an expert committee under Kirit Parikh to “look at various issues related to implementation of existing guidelines for grant of marketing authorization of market fuels —petrol, diesel and aviation turbine fuel (ATF), identify entry barriers, if any, for expansion of retail outlets for private marketing companies and recommend easing of fuel retailing licensing rules.” On October 23, the government announced major changes in the licensing rules. These include dispensing with the requirement of minimum investment of Rs 2,000 crore in oil or gas infrastructure — in hydrocarbon exploration and production, refining, import terminals, transportation, etc. Henceforth, “the applicant needs to have minimum net-worth of Rs 250 crore and commit to invest...
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Oil sector – is it ready for competition

Last year, the union minister of petroleum and natural gas [MPNG], Dharmendra Pradhan had set up an expert committee under Dr Kirit Parikh to “look at various issues related to implementation of existing guidelines for grant of marketing authorization of market fuels – petrol, diesel and aviation turbine fuel [ATF], identity entry barriers, if any, for expansion of retail outlets for private marketing companies and recommend easing of fuel retailing licensing rules ”. This was in the backdrop of persistent demand from various stakeholders for relaxing extant norms for granting authorization for marketing of oil products with a view to get more private players into retailing so as to increase competition, reduce price, improve services and give more choice to...
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Promote self-sufficiency

The big bang reforms proposed by the Government for the oil and gas sector are laudable but without a stable and predictable policy environment in place, they can’t make much headway The Union Government is considering far-reaching reforms in the gas sector. These include the setting up of a local gas trading platform to facilitate price discovery, stripping the power sector off its priority status by withdrawing priority allocation of natural gas and hiving off the transportation unit of the Gas Authority of India Limited (GAIL), a public sector undertaking (PSU) which currently holds an overwhelming 75 per cent share of the gas transmission network. The stated objective of these reforms is to enable energy firms to invest in exploration and...
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Gas reforms – holistic approach needed

The Union Cabinet is considering far reaching reforms in the gas sector. These include inter alia setting up of a local gas trading platform to facilitate price discovery, stripping power sector off its priority status in the allocation of domestic natural gas and hiving off the transportation unit of the Gas Authority of India Limited [GAIL] – a public sector undertaking [PSU] which currently holds an overwhelming share of the gas pipeline network. The stated objective of these reforms is to enable energy companies to invest in exploration and development of gas fields in India so as to increase indigenous production and ensure that the country achieves self-sufficiency in this major source of clean energy [currently, 50% of our gas...
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India’s quest for energy security – challenges ahead

India is heavily dependent on imports for its energy needs viz. 83% in crude oil and 45% in gas. Prime Minister, N Modi has proclaimed his government’s commitment to reduce the import dependence on oil to 67% by 2022 and further to 50% by 2030. Meanwhile, two major developments on the global front are giving jitters to our policy makers. First, the OPEC [Organization of Petroleum Exporting Countries] – a cartel of exporters from the middle-east – which supplies over 80% of India’s oil imports – has decided to continue their planned cut in output [a strategy that was initiated from January 1, 2017]. Together with reduction in supplies from non-OPEC countries led by Russia, this will continue to affect global...
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LPG – don’t involve OMCs in subsidy transfer

In a meeting with ministry of petroleum and natural gas [MPNG], parallel marketers of packaged domestic liquefied petroleum gas [LPG] viz. Reliance Industries Limited [RIL], Nayara Energy [formerly Essar Oil] and Total have demanded that the government  allow them to have a level-playing field with the state-run oil marketing companies [OMCs] viz. Indian Oil Corporation Limited [IOCL], Bharat Petroleum Corporation Limited [BPCL] and Hindustan Petroleum Corporation Limited [HPCL]. At present, only IOCL, BPCL and HPCL are allowed to sell subsidized LPG wherein consumers pay the full price upfront, but eligible beneficiaries [those with annual income < Rs 10 lakh] subsequently get back the subsidy amount in their bank account. Further, all domestic LPG producers have to supply their total output...
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Pricing freedom – not a panacea for India’s energy security

A committee under Dr Rajiv Kumar, vice-chairman, NITI Aayog on ‘Enhancing Domestic Oil & Gas Exploration and Production’ has recommended taking away 97 oil and gas fields – out of a total of 149 marginal fields – from public sector undertakings [PSUs] viz. Oil and Natural Gas Corporation [ONGC] and Oil India Limited [OIL], auction to the private entities and giving them ‘complete freedom of marketing and pricing’ on supplies from these fields. The committee has also recommended that ONGC/OIL should make efforts to improve performance of the remaining 52 fields to achieve specified production and financial targets within a given time frame failing which even these will be taken back by the government for privatization. Further, in respect of...
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Responsible oil pricing is the key

There are limits to the influence that can be brought to bear on the actions of oil producers. Enticing MNCs to participate in Indian exploration efforts and working towards alternative payment arrangements, however, is doable Interacting with global leaders from the energy sector on October 15, 2018, in New Delhi, Prime Minister Narendra Modi flagged three major issues: First, while expressing concern over the steep increase in international price of crude oil, he urged all leading producers/exporters to be more responsible in fixing the price to bring it down from the current high to a reasonable level. Second, keeping in mind the overarching need to increase domestic production India, he asked them to consider investing in exploration and development of...
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