India Plans to Free Natural Gas Prices Under New Auction Rules

(Bloomberg) -- India plans to free prices of locally extracted natural gas and allow producers marketing autonomy as part of new rules for auctioning exploration blocks.

The government also proposes to introduce a revenue-sharing model with operators, replacing the current profit-sharing mechanism, according to a notice on the oil ministry’s website. The plan includes a uniform licensing policy that will allow operators to explore all forms of oil and gas resources, including coal-bed methane, shale gas and oil, tight gas and gas hydrates.

The government’s initiative follows petitions from gas producers that the current tariff is too low to support exploration and production costs. State control on fuel pricing has prompted oil majors such as Exxon Mobil Corp., Chevron Corp. and Royal Dutch Shell Plc to stay away from India’s exploration-block auctions, which started in 1999. BP Plc, Europe’s second-biggest oil company, is the only overseas company with any significant presence in India’s exploration sector.

Reliance Industries Ltd., which produces gas from a deepwater block in the Bay of Bengal, reversed morning losses in Mumbai, rising as much as 0.5 percent to 937.35 rupees. Cairn India Ltd. rose as much as 1.2 percent, overcoming a decline of up to 1.3 percent . Oil & Natural Gas Corp. gained as much as 0.9 percent, recovering from a 3.3 percent drop.

Energy Security

Prime Minister Narendra Modi has made energy security a priority for India, which imports the bulk of its oil and gas. The government announced open-market rates for gas extracted from 69 small fields slated for auction by next month, Oil Minister Dharmendra Pradhan said on Sept. 2. 

“On the similar lines, it is proposed to provide pricing and marketing freedom for natural gas to be produced from the areas to be awarded under the new contractual and fiscal regime in order to incentivise production from these areas,” according to the statement.

India will also move to an open acreage licensing policy, allowing companies to submit bids for areas of their choice, according to the statement. The new rules, which have been sent to the explorers for their opinion by the end of this month, are aimed at “ease of doing business.”

To contact the reporter on this story: Debjit Chakraborty in New Delhi at dchakrabor10@bloomberg.net. To contact the editors responsible for this story: Pratish Narayanan at pnarayanan9@bloomberg.net Indranil Ghosh, Abhay Singh.

Copyright 2016 Bloomberg News.

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