Deepwater blocks may be allowed to sell up to 50% gas in open mkt

Deepwater blocks may be allowed to sell up to 50% gas in open mkt

The government is set to announce a new pricing regime for gas produced from difficult deep-water blocks later this month with the oil ministry submitting a reworked proposal to the finance ministry after the latter returned an earlier draft policy seeking clarification on procedures and revenue implications for the government.

Sources in the oil ministry said finance ministry objections to earlier draft were ‘clarificatory’ in nature and have been conveyed to it in the resubmitted proposal on premium gas pricing. “We expect the policy should now be announced soon as early as end of this month,” the source quoted earlier said.

The oil ministry has proposed that contractors of deepwater blocks can sell up to 50 per cent of production in the open market to realise additional cost in extracting gas from difficult regions. This would be lower for blocks that have lesser degree of difficulty with least difficult block be given 20 per cent of gas output for market sale.


It has finalised five categories of blocks – ultra deep water/high pressure-high temperature field, deepwater/high pressure-high temperature field, deepwater field, ultra deepwater field and high pressure-high temperature field. The first category would have permission to sell the highest 50 per cent of gas output in the open market. Contractors of other categories could be allowed to sell between 20-40 per cent of gas output at market-determined rate.

The market price is measured by the rate at which the fuel is imported, comes to around $7-8 per mmBtu while domestic gas is currently priced at $ 5.01 per mmBtu. “In order to address revenue concerns of the finance ministry, we have said that royalty to be paid by contractors on gas sold at market rate would be higher than the government determined gas price ($ 5.01 per mmBtu) or auction price. This would ensure that even if contactors get lower price on market sale, government’s revenue stream would not be impacted,” the source said.

The market price of gas would be determined on the basis of a tendering process with the highest price quoted getting the gas. In order to prevent profiteering by contractors, the new policy may also incorporate flexibility whereby the quantum of gas to be sold under market pricing would be reduced once annual gas price increase reaches a certain level.

The finance ministry, while returning the earlier draft policy of the oil ministry, had also stated that the premium should be consistent with the October 2014 cabinet decision. Following this, the oil ministry has resubmitted the proposal explaining that the premium proposed was consistent with the October 2014 decision of the Cabinet Committee on Economic Affairs (CCEA).

The new pricing formula is based on the recommendation of the Directorate General of Hydrocarbons.

Share Button