(ET)
The government proposes to implement a new floor price mechanism for gas produced from domestic fields by companies such as the Oil and Natural Gas Corporation (ONGC) to prevent the fuel price from crashing below an identified threshold in current subdued market conditions.
Domestic gas price has fallen to $1.79 per million British thermal units (mmBtu) for the October-March period of the current fiscal. The administered price of the gas has fallen in the last four six-monthly revision cycles and has now reached the lowest price levels since 2014. At this level of natural gas prices, exploration companies such as ONGC actually lose money on fuel as tariffs crash.
Sources said the Petroleum Ministry is considering a proposal under which domestic gas will have a floor pricing that would be linked to gas prices with the Japan-Korea Marker, a benchmark index used to determine LNG tariff in North Asia with a discount.
With JKM prices hovering over $5 per million British thermal units (mmBtu) even with a $1 mmBtu discount, the Indian gas floor price under this formula will be close to $4 mmBtu. This is much higher than the government’s current administered price of natural gas and would give necessary margins to oil explorers to economically maintain gas production cycles.
