14 Jan 2014

Government Notifies Domestic Natural Gas Pricing Guidelines, 2014

The Government has issued the Notification regarding Domestic Natural Gas Pricing Guidelines, 2014 on 10.01.2014. These Guidelines are hosted on website of the Ministry and will be published in the Gazette of India.

2. The extant gas pricing policy under NELP was earlier approved by the Government for five years commencing from April 2009 and is due for revision with effect from April 2014. The Government had constituted a Committee headed by DrRangarajan, Chairman, Economic Advisory Council to the Prime Minister in May, 2012, to look into “the Production Sharing Contract (PSC) mechanism in petroleum industry”. 

The Terms of Reference (TOR) of the Committee included, among others, formulating a structure and elements of the guidelines for determining the basis or formula for the price of domestically produced gas, and for monitoring actual price fixation. The Committee submitted its report in December 2012. Based on Committee Report, Government of India (GOI) approved the Natural Gas Pricing Guidelines in its meeting held on 27th June 2013.

3.   In pursuance of the earlier decision, GOI on 19thDecember, 2013 approved applicability of the Guidelines for D1 and D3 gas discoveries of the NELP Block KG-DWN-98/3, subject to submission of bank guarantees that will be notified separately.

4. Salient features of the Domestic Natural Gas Pricing Guidelines, 2014 are:

·         These guidelines will be applicable to all natural gas produced domestically, irrespective of the source, whether conventional, shale, CBM etc. These guidelines shall apply from 1st April 2014.

·          These guidelines shall not be applicable where prices have been fixed contractually for a certain period of time, till the end of such period. These guidelines shall also not be applicable where the production sharing contract provides a specific formula for natural gas price indexation / fixation. Further, the pricing of natural gas from small / isolated fields in the nomination blocks of NOCs will be governed by the extant policy in respect of these blocks issued on 8th July, 2013.

·         The prices determined under these guidelines shall be applicable to all consuming sectors uniformly.

·         These guidelines shall also be applicable for natural gas produced by ONGC/OIL from their nominated fields.

·         The pricing of natural gas produced domestically shall be based on the following methodology:

First, the netback price of all Indian imports at the wellhead of the exporting countries will be estimated as detailed in Para 1.7 below. Since there may be several sources of gas imports, the weighted average of such netback of import prices at the wellheads would represent the average global price for Indian LNG imports.

Secondly,weighted average of prices prevailing at trading points of transactions – i.e., the hubs or balancing points of the major global markets will be estimated. 

For this, (a) the hub price (at the Henry Hub) in the US (for North America), 

           (b) the price at the National Balancing Point of the UK (for Europe), and 

         (c) the netback wellhead price at the sources of supply for Japan will be taken as the average price for producers at their supply points across continents.

Finally, the simple average of the prices arrived at through the aforementioned two methods will be determined as the price for domestically produced natural gas in India.

·      Domestic Gas prices shall be notified in advance on a quarterly basis using the data for four quarters, with a lag of one quarter.

·      In respect of D1 and D3 gas discoveries of Block KG-DWN-98/3, these guidelines shall be applicable subject to submission of bank guarantees in the manner to be notified separately.

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