The finance ministry has nixed an oil ministry proposal to charge a market price for part of gas from deep-sea and ultra deep-sea blocks.
“The finance ministry has returned the proposal without approval with certain observations. We will have to reconsider the proposal,” a senior oil ministry official said.
The government, while approving a new gas pricing formula based on international hub rates in October, had decided that the prices of new discoveries in deep-water, ultra-deep sea or high-temperature and high-pressure fields would be at a premium over and above the approved price.
The oil ministry was asked to determine the premium to be paid to discoveries made after October 2014. Based on a recommendation of its upstream technical arm, the ministry proposed to allow a fixed percentage of gas produced from difficult fields to be sold at market price and the remaining as per the approved price.
Sources said the ministry had categorised the “difficult areas” into five groups, and the volume for market pricing would vary from 20-50 per cent. The more difficult a field, the larger its share of sales in the open market.
The current domestic gas price is $4.66 per million British thermal unit (mBtu), while the market price is $7-$8.
The premium pricing will bring some relief to state-run and private oil and gas explorers such as ONGC, Reliance Industries, Cairn India, BP, Oil India and Gujarat State Petroleum Corporation, who have been seeking a market-determined price for gas for long.
RIL and BP have been urging the petroleum ministry to relax the decision taken by the cabinet committee on economic affairs on October 18 last year to allow the premium pricing methodology for discoveries made before November 2014 as well.
According to the approved mechanism, the price of domestic gas is to be revised every six months using weighted average, or rates prevalent in the gas-surplus economies of the US/Mexico, Canada and Russia. Gas price was $5.05 per mBtu till March 31 and has subsequently been cut to $4.66 in line with international rates.
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