India’s cabinet approves standard bidding norms for new gas fields with free pricing

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Construction of Power of Siberia gas pipeline. Photo courtesy - Gazprom

India’s Cabinet has approved standard bidding norms to discover the prices of gas from new and upcoming fields. The move is aimed at augmenting production from these fields and reduce imports of the natural resource.

Currently, the new fields (other than the nominated ones) make up for less than fifth of the natural gas produced in the country, but these are expected to increase their share significantly in the coming years. “The policy aims to provide standard procedure for sale of natural gas in a transparent and competitive manner to discover market price by issuing guidelines for sale by contractor through e-bidding,” the government said in a statement.

The new bidding mechanism will impact the prices of fuel from the Krishna Godavari (KG) Basin in the east coast, where companies like Reliance Industries (RIL), BP and state-run ONGC are developing new gas production projects. The details of the bidding process is expected to be soon issued by the director general of hydrocarbons.

The cost of natural gas production in the KG basin varies from $4 to $8 per million British thermal unit (MBTU), while the selling price of the gas currently varies from $2.7-7.7 per MBTU in FY18, depending upon the kind of production blocks. “The policy will bring uniformity in the bidding process across the various contractual regimes and policies to avoid ambiguity and contribute towards ease of doing business,” India’s petroleum and natural gas minister Dharmendra Pradhan said recently.

Indigenous natural gas production caters about 51% of the country’s requirements. With oil and gas production becoming increasingly unviable for energy companies, domestic natural gas output fell 2.8% year-on-year (y-o-y) to 31,168.4 million standard cubic metre/day (MSCMD) in FY20, reversing the growth trend recorded since FY18. New fields can bring in another 14,600 MMSCM gas in production. 

The Union government recently slashed domestic gas prices from nominated fields by 25.1% to $1.79/mBtu as higher production and coronavirus-induced low demand has suppressed global gas prices.

According to the changes made in the Hydrocarbon Exploration and Licensing Policy (HELP), marketing and pricing freedom was given to gas developers of newly discovered fields. Blocks whose field development plan (FDP) had been approved after February, 2019, were permitted to sell through competitive bidding. The new bidding mechanism will be effective for all such production which enjoy pricing freedom.

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