The hike in price of diesel to a record Rs 61.74 per litre [Delhi] and petrol to a three year peak of Rs 71.18 per litre [Delhi] is a warning signal that the honeymoon period that India enjoyed for about three-and-a-half year beginning June 2014 may have come to an end. The prices of diesel and petrol broadly follow the movement in the international price of crude oil which India imports to meet around 82% of its requirements. The international price of crude oil declined from the peak of US$ 117 per barrel in June 2014 to a low of US$ 27 per barrel in February, 2016. During 2016, it increased slightly but still kept low at around US$ 40...
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Category: Pricing Policies & Subsidies
LNG contracts – put ‘India first’ for securing best price
India is deficient in energy resources [albeit conventional] especially oil and gas. Whereas, 80% of our oil requirement is imported, in case of natural gas, the import dependence is about 35%. The latter is a ‘clean’ fuel and ‘environment friendly’. It is therefore natural that in the overall energy mix, the government is laying greater emphasis on use of gas more so in fertilizer and power plants. Fertilizers and power together consume nearly 75% of the total gas consumption. These sectors also cater primarily to the requirements of vulnerable groups. Fertilizers supply essential plant nutrients to some 120 million farmers households more than 80% of whom are small and marginal or poor in short. Power too is used by farmers...
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Gas business – what prompts RIL-BP take a re-look?
One-and-a-half decade ago, Reliance Industries Limited [RIL] had created history by announcing the biggest ever gas discovery in Krishna Godavari [KG] basin off the Andhra Pradesh coast with an estimated in-place reserve of 12 trillion cubic feet [tcf]. It started producing from its most prolific bloc KG-DWN-98/3 in 2009 with a promise to deliver 80 million standard cubic meter per day [mmscmd]. After reaching 69 mmscmd in March 2010, production started declining and the trend never got reversed. Currently, it produces only 7 mmscmd which is not even 1/10th of the promised quantity. The precipitous decline in production has remained shrouded in mystery even as the operator is entangled in four arbitration cases with Union Government over various aspects of...
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Gas – stop this obsession with higher price
Once again, Oil and Natural Gas Corporation [ONGC] – a Government of India [GOI] undertaking in the upstream oil and gas segment which accounts for over 70% of indigenous gas production of 80 million standard cubic meter per day [mmscmd] – has raised a hue and cry over the existing guidelines for pricing of natural gas. ONGC Chairman, Dinesh K Sarraf has argued that current natural gas price being significantly lower than the cost of production, for any company it does not make economic or commercial sense to invest in new fields or augmenting production from existing ones through fresh investment. He has requested ministry of petroleum and natural gas [MPNG] to review the existing domestic gas pricing formula and...
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RAISING ISSUES WITH GAS PRICING POLICY
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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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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