India Unveils New Licensing, Pricing Norms for Hydrocarbons

A technician works inside the Oil and Natural Gas Corp (ONGC) group gathering station on the outskirts of Ahmedabad. (Photo: Reuters)

Taking up some long-pending issues in the oil and gas space, India on Thursday approved a new policy for their exploration, while also defining the norms for pricing of existing and new discoveries made in difficult areas.

Briefing reporters on the decisions taken at a meeting of the cabinet, presided over by Prime Minister Narendra Modi, the petroleum minister said the new oil and gas exploration policy will now be based on a revenue-sharing model, as opposed to cost-and-output-based norms earlier.

The difficult areas for which the new pricing norms have now been formulated are defined as those from deep-water, ultra deep-water and high-pressure, high-temperature areas. Such areas were not considered when prices were fixed for normal gas discoveries in 2014.

The bulk of such fields are with Reliance Industries and state-run Oil and Natural Gas Corp.

The oil minister said production-sharing contracts on some of the discovered fields could not be signed during the last two decades for a number of reasons, including arbitration proceedings, court cases, observations by the official auditor on “gold plating” of costs, and alleged scandals.

Resources worth more than Rs 261,000 crore will be brought into production as the result of today’s cabinet decisions. The decisions will also go a long way in generating employment, enhance transparency and reduce administrative discretion.

Dharmendra Pradhan, Oil Minister

The petroleum minister said the new oil and gas exploration policy will now be based on a revenue-sharing model (Photo: Reuters)

The new exploration licensing policy will allow production of both conventional and unconventional hydrocarbons, including shale gas, under a single license. It also provides for marketing freedom for crude oil and natural gas produced from the blocks.

Among the other decisions of the cabinet pertaining to the oil and gas sector, a Rs 8,000 crore outlay was provided to extend subsidised cooking gas to 50 million poor families in the name of the woman member, and the extension of contracts for 28 older hydrocarbon blocks.

This apart, the cabinet cancelled the award of the Ratna and R-Series field in 1996 to a consortium of Essar Oil and Oil Pacific UK.

In his budget speech last month, Finance Minister Arun Jaitley had said the government will extend incentives for the discovery and exploration of gas by providing companies the freedom to market the output.

India is blessed with rich natural resources including oil and gas. However, their discovery and exploitation has been below our potential. Imports of hydrocarbons occupy a large share of India’s total imports. As part of our drive towards self-sufficiency, the government is considering to incentivise gas production from deep-water, ultra deep-water and high-pressure, high-temperature areas, which are presently not exploited on account of higher cost and higher risks.

Arun Jaitley, Finance Minister 

He said companies will be provided calibrated marketing freedom, and also a pre-determined ceiling price discovered from global benchmarks.