ONGC, Oil India can sell gas from small oil fields

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As a first step towards gas price decontrol, the government has allowed national oil companies ONGC and Oil India to sell new gas supplies from their small and isolated fields at market-determined rates through an open tender.

The changes, which become effective from April 1, would allow state-owned companies to realise a premium over the government determined gas price of $5.01 per mmBtu. Companies are currently importing gas at a much higher price of around $ 8-10 per mmBtu.

“We have notified revised guidelines for sale of gas by NoCs where they would be free to invite bids through an open competitive bidding process for all new supplies. Additional availability of gas from existing production will not be covered under the scheme,” said a government official privy to the development.

The government had approved an international gas hub-based formula for all domestically produced natural gas in November last year where small and isolated fields were exempt. It was decided then that a new pricing mechanism would be finalised for these small fields.

Permission for market determined pricing of gas for small and isolated fields is expected to push state-owned companies to increase investment in development of these fields.

Development of these fields have become uneconomical under the government’s existing subsidy sharing mechanism where these oil explorers have to contribute towards oil marketing companies’ losses on sale of LPG cylinders and kerosene below cost.

Government sources said under the tender route, oil companies would fix minimum price for their gas, which would be the prevailing government-determined rate ($5.01 per unit). They would then ask buyers to bid a higher price through bidding.

Small and isolated fields are those whose peak production is less than 0.1 million standard cubic metres per day and are situated more than 10 km away from the gas grid. Also these fields should have gas pressure, which is less than the grid pressure. ONGC and OIL too have a few discoveries.

ONGC holds about 165 marginal fields (79 offshore and 86 onshore). Of these, with total ultimate reserves of 340 mt, operations are going on in 139 and work is yet to start on 26 blocks. Even before the new guidelines became effective, ONGC last year used the e tendering to finalise a price of $ 10.10-11.20 per mmBtu for sale of gas from new marginal fields in Gujarat and Andhra Pradesh.



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