Govt approves allocation of gas from new wells of ONGC, OIL at 20% premium

The government has approved the allocation of gas from ONGC’s and Oil India Limited’s new wells at 20 percent premium over APM price

New Delhi: The government has approved the allocation of gas from Oil & Natural Gas Corporation’s (ONGC) and Oil India Limited’s (OIL) new wells at 20 percent premium over the administered price, said ONGC in a statement on Monday. “… MOP&NG has now notified the allocation of gas produced from new wells or well interventions from nominated fields of ONGC/OIL at 20 percent premium over the APM price,” said ONGC.

Gas pricing regime

The price of domestic gas in India is governed by two pricing regimes as of now. Gas produced from fields given to ONGC and OIL by the government on nomination basis, often called legacy fields, is priced at 10 percent of the prevailing price of crude oil that India produces. This price is, however, subject to a price cap of USD 6.5 per Metric Million British Thermal Unit (mmBtu). Because of the price cap imposed by the government, this pricing regime is known as Administered Price Mechanism (APM).

The other pricing regime is for gas produced from difficult fields or deep sea, where the cost of production is high. This price is fixed bi-annually and the current price for six months, starting April 1, is USD 9.87 per mmBtu. At the time the government adopted these new pricing regimes last year, it had said that gas produced from new wells in legacy fields will be eligible to be sold at a premium of 20 percent over the APM price. And this is the change that has been notificed by the Ministry of Petroleum and Natural Gas now.

“As per Guidelines for domestic gas pricing, domestic natural gas price (APM Price) was fixed at 10 percent of the Indian Crude basket price as announced by Petroleum Planning and Analysis Cell (PPAC) on a monthly basis. It was provided in the guidelines that for the gas produced from new wells or well intervention in the nomination fields of ONGC/Oil India Limited, there would be a premium of 20 percent over APM prices (ie total 12 percent of Indian Crude basket price for new gas). The modalities for the same had to be worked out by Directorate General of Hydrocarbon (DGH) for approval of the Ministry of Petroleum and Natural Gas (MOP&NG),” ONGC said.

Enhanced price for new gas from legacy fields will make projects viable: ONGC

“The enhanced price for new gas will make the new gas development projects viable and help ONGC to augment the production of Natural Gas from nominated fields in challenging areas that require higher amount of capital and technology. This will enhance the investment capacity in the Company to take up development projects which are otherwise capital intensive and involve higher degree of risks requiring commensurate prices,” said ONGC.

“The ONGC board has recently approved the Daman Upside Development project in our nominated field of Mumbai High at a cost of ~ Rs 7,800 crore for increasing the domestic gas production and the job has already been awarded for execution. The peak production envisaged from this project is around 5 MMSCMD,” the statement added.