17-11-2012, 05:38 PM
Sourcing of Gas by Indian Companies
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DespitearelativelylongE&Phistory,onemajorissueconcernsthefactthatnofullgeologicalsurveyofthe sedimentary basinshas been completed (see Figure2). This issue, which isrecognised bythegovernment,isneverthelesscriticaltoattractinvestors.
Asalreadymentioned,ONGCandOILarethetwodominantplayerswithprivatecompaniesplayinganincreasingrole.Allnaturalgasproducedfromexistingfieldsinnominatedblocksof ONGCandOIListreatedas AdministeredPricingMechanism(APM)gas.However,bothONGCand OILwill nowbeallowed to sellanyproductionfromnewfieldsintheirblocksat marketpricesthat aresetandapprovedbythegovernmenttoencouragethetwocompaniestoinvestinupstreamdevelopment(seeprevioussectiononpricing).MeanwhileJVgasfromallocatedfieldsbeforeNELPissoldat“marketprices”,setandapprovedbythegovernment.GasproductionbyJVsandprivatecompanieshasbeenincreasing,atrendlikelytocontinueovertheupcomingyears.
TherecentmajordevelopmentistheKrishnaGodavariKG-D6(blockDWN-98/3)fieldoperatedbyReliance IndustriesLtd.(RIL).ThefieldislocatedintheBayofBengalofftheeastern coastofIndiaandproduced14bcminFY2009/10. Asofearly2010,ithasreached aproductionlevelof 60Mcm/d(22bcm/y)andisexpectedtoreachanannualplateauproductionof30bcmby 2012,similartoIndia’sdomesticproductionleveloverthepastdecade.
Indian Hydrocarbon Mission
The India Hydrocarbon Vision 2025 envisages a demand of about 391 million standard cubic feet per day (MMSCMD) of gas by the year 2020-25. The current production of natural gas in the country is about 150 MMSCMD and is expected to go up to about 192 MMSCMD by the year 2011-12.
• New Exploration Licensing Policy (NELP), implemented by Government of India, permits 100 per cent FDI for small and medium sized oil fields via competitive bidding.
• Public-private partnerships (PPP) as well as only private investments can foray into the refining sector. In case of an Indian private company, 100 per cent FDI is allowed.
• 100 per cent FDI is allowed for petroleum products and pipeline sector as well as natural gas/ LNG pipeline, for infrastructure related to marketing of petroleum products, market study of formulation and investment financing.
• Minimum 26 per cent equity is covered over five years, in case of trading and marketing.
• The Government is determined to protect the interest of common man while providing quality petroleum products at reasonable prices, asserted Mr S Jaipal Reddy, Minister of Petroleum and Natural Gas in a recent meeting. He further added that with a view to reduce burden on consumers as well as oil marketing companies (OMCs), the Government has eradicated the Customs Duty on Crude Oil and trimmed Customs Duty on petroleum products by 5 per cent. Excise Duty on diesel was also reduced by US$ 0.056 per litre.
The New Exploration Licensing Policy
Theevolution of Indian gas production over the past years is due entirely to the NewExploration LicensingPolicy.Therehadalreadybeen explorationbiddingroundsorganizedover1979-98–beforeNELPbegan–allowingprivatecompaniestobid,buttheywerenotvery successful.Fourroundstookplaceduringtheperiod1979-91andfiveduring1994-95.Only 148bids were madefor the 349 blocksofferedand only 28 contractssigned.Even whencontractsweresigned,thedelayswereimportantbeforegettingthe approvalfromtherelevantagencies.Furthermore,retailpricecapswerehinderinginvestmentinnewgasproductionandsupplyinfrastructure,whileprivateandforeignoilandgascompanieshadlittleaccesstotheIndianmarket. Bytheendofthe1990s,asmuchashalfofIndia’sgasdemandwasunmet(MoPNG, 2000).
In1997,theGovernmentofIndiaadoptedtheNewExplorationLicensingPolicy(NELP)basedon production-sharing contracts,in orderto solvetheseproblems– especially the supplyshortages.
Thepolicy,aimingatcreatingamoreinvestor-
friendlyframework,consistedofthefollowingsteps:
• deregulationoftheupstreamsector
• openingthedoorstoprivateandforeigninvestors
• promisetogivecompaniestherighttosellgasatmarketpricesonthedomesticmarketbutwiththe governmenthavingafinalsayonpricing
• gradualevolutiontofullmarketpricing.
ThefirstroundstartedinJanuary1999.TheNELPallowedprivatecompaniestobidforoilandgas explorationblocks,withnolimitationonthenumberofblocks.Privateinvestorswereguaranteedattractivetaxrules(suchasaseven-yeartaxholidayfromstartofproductionornocustomsdutyon importsforpetroleumproducts)andalsothefreedomtoselltheirgasatapriceagreedwiththe government.TherewasnocarriedinterestbyPSU(India’sNationalOilCompanies[NOCs]).Previously,therewasanoption(butnotarequirement)forPSUstotakeparticipationupto40%;thiswas suppressedintheNELP.Conditionsfordeepwaterprojectswere mademoreattractivebybeingcharged lowerroyaltiesthanotherprojects.
The allocation of KG-D6
GasistobesoldaccordingtotheIndiangaspolicyreflectingrecentdecisionsonvolumesand end-consumers. The gas produced during Phase 1 (40 Mcm/d)would therefore be allocated with the following priority and volumes:
• Fertilisercompanies:15Mcm/d
• Existinggas-firedpowerplantsandplantstobe commissionedbeforeApril2010:18Mcm/d
• LPGandPetrochemicalplants:3 Mcm/d
• Citygasdistribution:5 Mcm/d.