Category: Administered pricing regime (APR)

Detoxify oil pricing

The COVID-19 outbreak is a rare event and oil exporters may think that after this ends they can continue to extract a higher price from importing countries. This is flawed thinking On October 15, 2018, while interacting with global leaders from the energy sector in New Delhi, Prime Minister Narendra Modi had expressed concern over the steep increase in the international prices of crude oil (at $80 per barrel leading to corresponding increase in price of diesel and petrol) and had urged all leading producers/exporters to be more responsible in fixing the price, to bring it down  to a reasonable level. At that time, no one had even contemplated a scenario wherein the price of crude would plunge to a fraction of...
More Comments are closed

Price control: The gas on gas price deregulation

Under a special package for deep/ultra-deep, high-pressure/high-temperature (HP/HT) fields announced in March 2016, the supplies therefrom are allowed ‘premium’ price, linked to the prices of alternate fuels, including fuel oil, naphtha, and imported liquefied natural gas (LNG). The government has initiated discussions to ‘lift price restrictions on domestically produced natural gas’. However, it intends to do it ‘gradually’. It wants to continue with regulated gas pricing for at least three more years. However, in the interregnum, producers will be given freedom to sell a portion of the total output under ‘negotiated pricing deals’ with their customers. Will it help? Under the guidelines in effect since November 1, 2014, for all domestic supplies from fields given under the new exploration and...
More Comments are closed

Gas price deregulation – what is holding back

The government has initiated discussions to ‘lift price restrictions on domestically produced natural gas’. However, it intends to do it ‘gradually’. It wants to continue with regulated gas pricing for at least three more years. However, during the interregnum, producers will be given freedom to sell a portion of the total output under ‘negotiated pricing deals’ with their customers. Will it help? Under the guidelines in vogue since November 1, 2014, for all of domestic supplies from fields given under new exploration and licensing policy [NELP] as also blocks given on ‘nomination’ to Oil Natural Gas Corporation [ONGC] and Oil India Limited [OIL] under pre-NELP, the price [call it normal price] is a weighted average of prices at 4 international...
More Comments are closed

Oil sector – is it ready for competition

Last year, the union minister of petroleum and natural gas [MPNG], Dharmendra Pradhan had set up an expert committee under Dr Kirit Parikh to “look at various issues related to implementation of existing guidelines for grant of marketing authorization of market fuels – petrol, diesel and aviation turbine fuel [ATF], identity entry barriers, if any, for expansion of retail outlets for private marketing companies and recommend easing of fuel retailing licensing rules ”. This was in the backdrop of persistent demand from various stakeholders for relaxing extant norms for granting authorization for marketing of oil products with a view to get more private players into retailing so as to increase competition, reduce price, improve services and give more choice to...
More Comments are closed

Gas – stop this obsession with higher price

Once again, Oil and Natural Gas Corporation [ONGC] – a Government of India [GOI] undertaking in the upstream oil and gas segment which accounts for over 70% of indigenous gas production of 80 million standard cubic meter per day [mmscmd] – has raised a hue and cry over the existing guidelines for pricing of natural gas. ONGC Chairman, Dinesh K Sarraf has argued that current natural gas price being significantly lower than the cost of production, for any company it does not make economic or commercial sense to invest in new fields or augmenting production from existing ones through fresh investment. He has requested ministry of petroleum and natural gas [MPNG] to review the existing domestic gas pricing formula and...
More No comments

RAISING ISSUES WITH GAS PRICING POLICY

The Government needs to re-look at the current pricing scheme for CBM production as it is not reaping returns. It must, instead, stick to extant formula-based guidelines The Cabinet Committee on Economic Affairs (CCEA) has approved marketing and pricing freedom to contractors/producers of coal-bed methane (CBM), or natural gas from coal seams, to sell it at arms length price in the domestic market. To discover arms length price, a contractor has to now follow a fully transparent and competitive bidding process from amongst users “with the objective that the best possible price is realised for the gas without any restrictive commercial practices”. This decision has come in response to a scenario, whereby producers such as, Reliance Industries Limited (RIL) and...
More No comments

Gas pricing – stop that policy drift

The Cabinet Committee on Economic Affairs [CCEA] has approved marketing and pricing freedom to contractors/producers of coal-bed methane [CBM] – or natural gas from coal seams – to sell it at arms length price in the domestic market. To discover arms length price, a contractor has to follow a fully transparent and competitive bidding process from amongst users “with the objective that the best possible price is realized for the gas without any restrictive commercial practices”. In the event, he cannot identify any buyer, sale can be made to any of its affiliates. Royalty and other dues to the government, however, shall be payable on the basis of Petroleum Planning & Analysis Cell (PPAC) notified prices or selling prices, whichever...
More No comments

Impending oil shock – expedite subsidy reforms

After protracted battle within the bloc [as also with countries outside], members of the Organization for Petroleum Exporting Countries [OPEC] – a conglomeration of oil exporting nations from the middle east – have agreed to reduce their combined output by about 1.2 million barrels a day. Likewise, 11 non-OPEC countries led by Russia have decided to knock off over 500,000 barrels from their supplies. The agreement is effective from January 1, 2017. The agreement has to be viewed in the backdrop of a steep decline in the international price of crude oil from the peak of US$ 117 per barrel in June 2014 to a low of US$ 27 per barrel in February, 2016. During the current calendar, even though...
More No comments

Keep gas pricing formula-driven

On October 1, 2016, the Indian Government reduced the price of domestic gas by 18% to US$ 2.78 per million British thermal units [mBtu] on a net calorific value [NCV] basis. The public sector Oil and Natural Gas Corporation and Oil India Limited raised a hue and cry saying this is even lower than their cost of production at US$ 3.59 per mBtu/US$ 3.06 per mBtu. They want a “floor” below which the price should not be allowed to go. Their demand is flawed. Under the guidelines for domestic gas pricing in vogue since November 1, 2014, the price of this gas was based on a weighted average of prices at four global locations viz., Henry Hub [USA], NBP [National...
More No comments

Gas pricing – keep it formula driven

Following the downward revision in the price of domestic gas by 18% to US$ 2.5 per million British thermal unit [mBtu] – on gross calorific value [GCV] basis – from October 1, 2016, the two public sector undertakings [PSUs] in the upstream oil & gas segment viz., Oil and Natural Gas Corporation [ONGC] and Oil India Limited [OIL] have raised a big hue and cry about its likely impact on continued viability of their operations. The ONGC/OIL duo have contended that the revised price at US$ 2.78 per mBtu on net calorific value [NCV] basis [corresponding to US$ 2.5 per mBtu on GCV] is even lower than their cost of production at US$ 3.59 per mBtu and US$ 3.06 per...
More No comments