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India notifies transparent gas market price discovery template
The Union government has laid down the template for the transparent gas market price discovery and has empanelled SBI Capital Markets Ltd, MSTC Ltd, Crisil Risk and Infrastructure Solution Ltd, RITES Ltd and mjunction services Ltd to carry out discovery auctions through an electronic platform.
A petroleum and natural gas ministry notification dated 3 December has laid down the process to be followed for discovering market price for domestically produced natural gas. According to the notification, a contractor shall engage on independent agency from the above-mentioned firms, who have been initially empanelled for three years.
“The Contractor shall design the tender/ bid offer, including eligibility criteria, bid parameters, evaluation criteria, tender fee, salient terms and condition of Gas Sales Agreement and any other relevant information, etc., with a view to encourage wider participation from prospective buyers, promote competition and maximize the value of natural gas offered,” the notification stated.
This standardized e-bidding mechanism has been formulated by the directorate general of hydrocarbons (DGH) after the Cabinet Committee on Economic Affairs (CCEA) in October had approved the formulation of a standard procedure for market price discovery of gas across various contractual regimes.
“On completion of the bidding, the Contractor shall submit a bid closure report to DGH with details such as list of participants, list of qualified bidders, selected bidders with their price and quantity allocated etc. Further, a copy of all the Gas Sales Agreements (GSAs) executed between Contractor and buyers shall be submitted to DGH,” the notification said.
The move is expected to attract investors and help India’s push for a gas-based economy, with the government’s plan to increase domestic gas production by an additional 40 million standard cubic meters a day (mmscmd), from the current 80 mmscmd.
“The entire proceeding will he conducted by the Contractor/producer without any need for approval of the government. The government however will have the right to ask for information and intervene if there are reasons to believe that there is foul play,” the notification said.
The government has already provided for pricing and marketing freedom of gas from blocks awarded under the Discovered Small Field Policy (DSF), Hydrocarbon Exploration and Licensing Policy (HELP) and Coal Bed Methane (CBM) contracts, and discoveries from difficult fields such as deep water, ultra-deep water and high pressure-high temperature areas. This brings all of it under a standard procedure for market price discovery of gas.
“National Oil Companies viz., ONGC and OIL shall also follow the above guidelines for discovery of market price of natural gas produced from their Nomination fields wherever pricing and marketing freedom has been granted,” the notification added.
Gas comprises about 6.2% of India’s primary energy mix, far behind the global average of 24%. The government plans to increase this share to 15% by 2030. India’s gas demand is expected to be driven by fertilizer, power, city gas distribution, and steel sectors.
“The objective of the policy is to prescribe standard procedure to discover market price of gas to be sold in the market by gas producers, through a transparent and competitive process, permit Affiliates to participate in bidding process for sale of gas and allow marketing freedom to certain Field Development Plans (FDPs) where Production Sharing Contracts already provide pricing freedom,” the government had said in a statement in October.
However, this mechanism will not be applicable for production from blocks awarded on a nomination basis, governed by a formula announced in October 2014 by the National Democratic Alliance government. The formula uses the weighted averages of prices in the three major international gas trading hubs of US Henry Hub, the UK National Balancing Point and Japan’s custom-cleared rate.
As per the gas price formula for nominated fields, India has reduced the domestic natural gas price to $1.79 per million British thermal units (mmBtu)—the lowest under the new domestic gas price regime, which was introduced in 2014. The new price will be applicable from 1 October till 31 March.
“The existing gas sales agreements, made in connection with contract provisions, would continue till duration of the agreements/contracts and thereafter subsequent sale of gas shall be subject to these guidelines,” the notification said.
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