Government notifies guidelines for pricing domestic natural gas

The government has notified a new set of guidelines on pricing natural gas produced within the country that would double the price of the fuel for the consumer, from the current $4.2 per million British thermal units to around $8.4 per mmBtu, effective 1 April 2014.

The `Domestic Natural Gas Pricing Guidelines, 2014' notified on Friday, will apply to all natural gas produced within the country, irrespective of the source, whether conventional, shale or coal-bed methane (CBM) from 1 April 2014, both in the public sector and the private sector.

The price of natural gas produced domestically will be the simple average of the weighted average of all wellhead prices of imported natural gas and the weighted average of prices prevailing at trading points of transactions, ie, the hubs or balancing points of the major global markets (including at the Henry Hub in the US, the National Balancing Point of the UK and the netback wellhead price at the sources of supply for Japan).

Under the new pricing policy recommended by a committee headed by C Rangarajan, chairman, Economic Advisory Council to the Prime Minister that looked into ''the production sharing contract (PSC) mechanism in petroleum industry'', the domestic price of natural gas will be notified in advance on a quarterly basis using the data for four quarters, with a lag of one quarter.

In respect of the Reliance Industries-operated D1 and D3 gas discoveries of Block KG-DWN-98/3 off the east coast of India, these guidelines will be applicable subject to submission of bank guarantees in the manner to be notified separately, the petroleum ministry said in its notification.

The bank guarantee, which will be equivalent to the incremental revenue that RIL will get from the new gas price, will be encashed if it is proved that the company hoarded gas or deliberately suppressed production at the main D1&D3 fields in the eastern offshore KG-D6 block since 2010-11.

The new pricing guidelines will not apply:

• Where prices have been fixed contractually for a certain period of time, till the end of such period; and
• Where the production sharing contract provides a specific formula for natural gas price indexation / fixation.

Further, the pricing of natural gas from small / isolated fields in the nomination blocks of NOCs will be governed by the extant policy in respect of these blocks issued on 8 July 2013.

The prices determined under these guidelines will be applicable to all consuming sectors uniformly.

These guidelines will also be apply to natural gas produced by ONGC / OIL from their nominated fields.

The netback FOB prices and volumes at those prices from various exporting countries are available from LNG Daily and World Energy Intelligence, Argus, Platts, etc.

The FOB price includes liquefaction costs of gas at the plant in the producing country at the loading port, plus the transportation, including handling and sweetening charges of the gas from the producing asset to the liquefaction plant, according to the ministry release.