Ban on selling gas to affiliates lifted

Cabinet approval for gas reforms is a huge boost for private gas producers such as Reliance Industries and Cairn
Ban on selling gas to affiliates lifted

NEW DELHI:  The Cabinet on Wednesday gave a massive shot in the arm for private natural gas firms such as Reliance Industries and Vedanta-owned Cairn India. The Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Narendra Modi decided to set in place a common e-bidding system for gas sales and lift the ban on selling gas to affiliate companies. Gas producers themselves, however, continue to be banned from buying gas from their own fields.

The CCEA has also extended complete marketing freedom for gas blocks where “Production Sharing Contracts already provide pricing freedom”. As currently structured, the gas marketing system is focused on keeping prices low.

A senior gas industry executive who spoke on condition of anonymity said that while pricing freedom had been extended to gas fields in 2016 and 2019—except for those operated by state-owned ONGC Ltd and Oil India Ltd on a nomination basis—prices remain lower than “natural market levels”. “The ban removed much of the competition, so prices stay low... many affiliates owned by upstream companies could not buy gas from their parents... effective market was smaller,” he said.

A case in point is Reliance Industries and British oil major BP Plc, whose gas marketing joint venture—India Gas Solutions Pvt Ltd. (IGSPL)—has been unable to buy gas from fields owned by RIL and BP, such as the KG-D6 assets. While the ban on selling to affiliates has been lifted, other safeguards on price manipulation remain. According to oil minister Dharmendra Pradhan, if only affiliates participate in a particular auction, then re-bidding will be mandatory.

The decision to extend marketing freedom to fields where PSCs allow pricing freedom is also advantageous to firms such as Cairn, and Focus Energy, who operate several fields. Both will now be able to sell gas to anyone, unlike earlier when they could only sell to state-owned GAIL India. According to Pradhan, “this will add 40 million standard cubic metres per day of production from K-G basin and other areas to the current output of 84 mmscmd”, and “will bring uniformity in the bidding process across the various contractual regimes and policies”. 

The question of who can bid for gas auctions has raged on for a while, especially after September 2017, when Reliance sold all the gas produced in its Madhya Pradesh coal bed methane field to itself. An enquiry was begun but did not result in a licence cancellation. The e-bidding platform lessens the scope for such controversy. The Directorate General of Hydrocarbons will now notify guidelines for the e-auctions and shortlist a panel of e-bidding platforms which may be used by the gas producers.

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The New Indian Express