Considering that the Government has just doubled the price at which natural gas will be sold, to a benchmark price of $8.4 per unit, and given that the hike was well flagged and therefore not ‘below expectations’, one would imagine that companies producing natural gas would be thrilled to bits.

Well, they are not. Ian MacKenzie, CEO of Hardy Oil, says, “The gas price hike helps as it improves the bottom-line, but I’m not sure whether it is enough.”

This “well, thank you, however…” kind of reaction should not be a matter of surprise, because oil companies’ stand has been consistently in favour of a ‘market determined price’, which had been promised under their production-sharing contracts.

But what should surprise is the fact that both the sellers of the gas and the buyers seem to be okay with ‘market-determined’ pricing, yet the Government has put off to 2017 the move away from Government-fixed pricing.

Writing in this newspaper, fertiliser industry expert Uttam Gupta said in an article published earlier this month that if “gas suppliers felt that they should get market-determined prices — as promised under production sharing contracts — and the Government too shares this view, the latter should let the market determine prices for fertiliser and power.”

Short-changed

Gas producers feel they have been short-changed by the Government. First, they feel that the Government has gone back on its word by disallowing the tax holiday for gas discoveries — something they believe was promised under the New Exploration Licensing Policy. Those who produce oil get the tax holiday, but gas producers don’t, although both the commodities are energy hydrocarbons and the costs and risks in finding and producing them are the same.

The dispute, over the interpretation of a certain provision of the Income-Tax Act, has been with the Court since 2006. “I don’t think either the operator or the country is a winner from the reduced exploration resulting from this dispute,” says Ashu Sagar, Secretary-General, Association of Oil and Gas Operators (AOGO), whose members include Reliance Industries Ltd, ONGC and GAIL.

PrICING ISSUE

On top of this, pricing is an issue. Gas producers say their production sharing contracts clearly specify that the output shall be bid out to buyers.

They point out that in a free market, prices could go down too, perhaps below the current $4.2 per mmbtu level. Oil and gas contracts, like power purchase agreements, are long-term contracts which could well run for 30 years. The prices will be impacted by, say, a shale or a gas hydrate bonanza or a major pick-up in alternative energy. Gas may be a seller’s market today, but things could easily flip. “It is better to pass these risks to businesses,” says Sagar, stressing that free market ensures survival of only the efficient and the fit.

Sagar does not agree with the view that companies such as Reliance deliberately did not produce the gas, as they were waiting for the price hike. There is a view among the public that such companies should be made to supply contracted quantities of gas at existing rates before becoming eligible for the newly-fixed prices.

AOGO feels the Government has a body of experts in DGH and Institute of Reservoir Management. They receive all the data. They also ask the operator to run any additional tests if required. The Government also has access to internationally established consultants. All parameters in testing are determined by third parties that have an international reputation to preserve.

One cannot assume that an oil company under a PSC can deliberately reduce production without everyone in these organisations knowing about it.

Gas supplies in the sales contract are made according to specific protocols to tackle all contingencies.

“You can also be sure that the buyers shall enforce whatever rights they have,” he said.

>ramesh.m@thehindu.co.in

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