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Extra price punch for deep-sea gas

Gas discovered in deep-water and ultra deep-sea blocks, where production has not started, is likely to get a premium over and above the approved price.

The move will benefit state-run ONGC and Gujarat State Petroleum Corporation (GSPC).

"We are considering giving a premium over the approved price so that commercial production of discovered field becomes operational," a senior oil ministry official said.

The government had earlier said it would offer premium only to new discoveries from difficult fields.

ONGC and GSPC have written to the oil ministry stating that the current prices are too low and unviable for commercial production.

The Centre had cut natural gas prices by 18 per cent to $3.82 per million British thermal units (mBtu) for October to March 2016.

ONGC has asked the government to give the output from the KG-D5 block off the eastern coast a premium over the domestic price as the price was too low to make the project viable. The block has capacity to produce 14.5 million standard cubic metres per day for 15 years. The PSU has said it will need $6-7.15 per mBtu to break even.

GSPC's KG-8, or Deen Dayal West block, is estimated to hold 1.8 tcf (trillion cubic feet) of reserves, and the company had discovered an arm's length price of at least $8.5 per mBtu.

Global trend

According to some forecasts, global prices are likely to fall further, putting pressure on exploration companies to exploit the natural resource in viable amounts.

Global LNG output is expected to rise two-and-a-half times to 500 bcm (billion cubic metres) by 2020 because of increasing supplies from the US and Australia, putting further pressure on prices that have already lost two-thirds since February 2014 to $6.70 per mBtu. Prices may fall to $4 per mBtu by 2017, reports energy researcher FGE.

LNG producers are forecast to add 50 million tonnes (mt) of capacity next year, equivalent to a fifth of the current global demand, according to Sanford C Bernstein & Co.

"We strongly advocate a gas pricing mechanism, which adequately remunerates domestic exploration and production. Not only is this imperative for the development of domestic hydrocarbon industry, but is vital towards ensuring India's energy security," industry association Ficci said.

"A pricing regime should be reflective of the enormous geological risks and production uncertainties that are inherent in geography such as India," it added.

Countries such as the US, Russia, Malaysia, China, Canada and Colombia offer incentives to drill hydrocarbons from difficult reserves. Explorers get income tax breaks, investment allowance and pay lower production tax.

China pays its explorers $11.9 per mBtu for new projects, while Indonesia and the Philippines price the fuel at $11 and $10.5, respectively. Gas from offshore fields in Myanmar, where ONGC and GAIL (India) Ltd have stakes, are sold to China for $7.72. Thailand prices gas from new projects at $8.2 per mBtu. Vietnam has a gas price of $5.2 and Malaysia $5.

India's demand in 2016-17 is forecast to grow 55 per cent to 378.06 million cubic metres per day from around 242.66 million cubic metres per day in 2012-13, according to the Vision 2030 report of the oil ministry.

Demand is forecast to more than double to 516.97 million cubic metres per day in 2021-22, according to the report.

IOC in buy mode

Hot on the heels of ONGC Videsh Ltd's (OVL) $1.27-billion deal to buy a stake in Russia's Vankor oilfield, IOC has expressed interest in picking up a 5-10 per cent stake in the Rosneft-operated field.

OVL had on September 4 agreed to buy a 15 per cent stake in Russia's second-biggest oilfield from Rosneft for $1.268 billion.

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