BSE Oil & Gas index surges in trade, as government to hike gas price

In a move that could boost Oil exploration companies like RIL and ONGC, the government is contemplating to raise natural gas price by about 60 per cent for their undeveloped gas discoveries in difficult areas.

As domestically-produced gas is currently priced at average rates in gas-surplus countries like the US, Canada and Russia, for deep-sea discoveries yet to be developed, the government plans to price them at an average cost of alternative fuels -- naphtha and fuel oil as well as imported LNG (liquefied natural gas).

Gas price in India currently stands at USD 3.82 per million British thermal units, which will fall to USD 3.15 in April, a rate that is not high enough to make up for cost of deep-sea development. Since this rate is so low that it does not provide explorer with any incentive, the government plans to price undeveloped gas discoveries in deep-sea, ultra-deep sea and high-temperature, high-pressure areas using average of landed price of naphtha, fuel oil and liquefied natural gas (LNG), Economic Affairs Secretary Shaktikanta Das told PTI in an interview.

According to the economic affairs secretary "It (gas price) would be linked to average of three sources of fuel i.e. naphtha, fuel oil and LNG. The average of imported landed cost (of the three) will be the price that those people will get who do exploration and discovery in deep-sea, difficult areas. It won't be an administered price as it is for others, but it will be a price which will be an average of those three".

In recent times there have been many discoveries made but are delayed due to the low price being offered for those fields in addition to the higher expense that the exploration companies have to spend on extraction of oil from difficult fields. About two dozen discoveries of the state-owned ONGC, Reliance Industries and the Gujarat State Petroleum Corp (GSPC) in KG Basin alone are languishing for want of right price.

The Cabinet, he said, will decide if it will be a normal or weighted average of naphtha, fuel oil and LNG that will be considered. The Economic Survey, too, had rooted for market-determined arm's length pricing for domestic gas.

According to many brokerage reports, the market-determined price would reflect the appropriate gas price in relation to alternative fuels. Gas price in India, it said, is lower than USD 9 per mmBtu in China, USD 10.5 in the Philippines, USD 6.5 in Indonesia and USD 8 per mmBtu in Thailand and Malaysia, therefore making it less viable for oil & gas discoveries due to the nature of cost involved.

Reacting to this piece of information BSE Oil & Gas index surged more than 1.5 per cent in afternoon trade before closing the day higher with the gains of 1.55 per cent. Shares of ONGC and RIL surged as much as 3 per cent and 1.7 per cent respectively in trade.