Gas pricing, marketing freedom to help companies draw investments


Gas pricing, marketing freedom to help companies draw investments

The government’s decision to free up gas pricing and incentivise incremental output is likely to fire up investments in gas fields and raise production, said company executives and analysts.

The Cabinet on Tuesday granted marketing and pricing freedom to all new gas discoveries whose field development plan (FDP) had yet to be approved. It also introduced fiscal incentive to operational fields for producing more than the current level.

This is positive for us as we will be able to fast-track at least three projects that were ready to develop but commercially not viable,” said ONGC chairman Shashi Shanker. These three discoveries have a producible reserve of 30 billion cubic metres and are expected to have a combined peak production of 10 million metric standard cubic metres a day, he said.

For ONGC, the benefit will not be limited to just three discoveries. “We welcome the reform momentum and are looking forward to details of the policy to assess the impact on our production, including in current sites,” said a spokesperson for Vedanta.

This is a positive step in terms of encouraging additional activities in the E&P sector and should help accelerate development of discovered resources. We have yet to review the notification, but at this point of time none of BP’s existing developments will be affected by this announcement,” said a spokesperson for BP.

BP is a partner of Reliance Industries in several upstream projects in India.

Pricing freedom would incentivise production. Producers can easily expect a price that is double that of domestic formula prices,” said K Ravichandran, analyst at credit rating agency ICRA. At present, the domestic formula price for gas is $3.36 per unit.

Just about 25 of the total 115 gas discoveries made in blocks auctioned previously are under production as per the official data, and so 90 discoveries can potentially benefit from pricing freedom, Ravichandran said.

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