India Unveils New Hydrocarbon Policy
India on Thursday announced a new hydrocarbon exploration policy.
Among the various measures that the nation’s cabinet approved to boost oil and gas production, is that of marketing and pricing freedom for new gas production from deepwater, ultra deepwater and high pressure-high temperature areas.
The cabinet also announced a policy for future which provides for a uniform licensing system to cover all hydrocarbons such as oil, gas, coal bed methane, shale gas, shale oil, etc. under a single licensing framework, Hydrocarbon Exploration and Licensing Policy (HELP). The present policy regime for exploration and production of oil and gas, known as New Exploration Licensing Policy (NELP), been in existence for 18 years. Over the years, various problems and issues have arisen.
“Presently, there are separate policies and licenses for different hydrocarbons. There are separate policy regimes for conventional oil and gas, coal-bed methane, shale oil and gas and gas hydrates. Different fiscal terms are also in force for allocation of acreages for exploration for different hydrocarbons. In practice, there is overlapping of resources between different contracts. Unconventional hydrocarbons (shale gas and shale oil) were unknown when NELP was framed. This fragmented policy framework leads to inefficiencies in exploiting natural resources,” the government said in a statement.
The government believes the new policy regime will mark a generational shift and modernization of the oil and gas exploration policy. It is expected to stimulate new exploration activity for oil, gas and other hydrocarbons and eventually reduce import dependence.
Regarding new gas production from deepwater, ultra deepwater and high pressure-high temperature areas the cabinet said, “After extensive consultations, it was felt that rather than fixing a premium, it would be more appropriate to provide marketing and pricing freedom to the gas to be produced from the new discoveries as well as existing discoveries which are yet to commence production. However, in order to protect user industries from market imperfections, this freedom would be accompanied by a price ceiling based on opportunity cost of imported fuels.”
Producers will be allowed marketing and pricing freedom for all the discoveries in deep water, ultra-deep water, high temperature high pressure areas which are yet to commence commercial production as on 1.1.2016 and for all future discoveries in such areas.
However, to protect user industries from any market imperfections, this freedom would be subject to a ceiling price on the basis of landed price of alternative fuels, the government stated. To the extent that domestic gas can be produced and sold at a price below import parity price.
India is among the largest consumers of energy and has been overwhelmingly reliant on imports to meet local demand as domestic output has been sliding in recent years. Domestic gas production witnessed a decline of 17 percent in two years from 40.66 BCM in 2012-13, it fell to 33.65 BCM in 2014-15.
Cabinet also approved replacing the controversial Production Sharing Contract (PSC) with simpler revenue-sharing regime for all future field auction.