State-owned Oil and Natural Gas Corporation (ONGC) has thrown a curveball into India’s gas market by seeking a premium over the government-set price for its upcoming production of coal seam gas (CSG) from the Bokaro block in Jharkhand. This move could potentially set a precedent for future CSG pricing and has ignited a debate about fair pricing and market access.
ONGC has invited bids from users for the sale of gas from its North Karanpura coal-bed methane (CBM) block in Jharkhand. However, instead of offering the gas at the standard government-determined price, the company is seeking an additional “premium” to be quoted by bidders. This premium would essentially be a surcharge on top of the existing price.
Traditionally, the Indian government fixes the price for two-thirds of domestically produced natural gas, including conventional gas and most CSG. However, ONGC is seeking a “positive non-zero premium” over the regulated price for its Bokaro CSG, breaking free from the established pricing mechanism.
Justification and Implications:
ONGC argues that the higher price is necessary to cover the additional costs associated with CSG production compared to conventional gas. CSG development often involves complex extraction methods and requires deeper drilling, making it a more expensive proposition.
If ONGC’s bid is successful, it could pave the way for other CSG producers to demand similar premiums, potentially leading to higher gas prices for consumers. This could have a cascading effect on various sectors, including fertilizers, power generation, and city gas distribution.
Industry Reactions about the higher prices:
Industry experts are divided on the issue. Some support ONGC’s claim of higher costs for CSG production and acknowledge the need for a market-driven approach to attract investments in unconventional gas exploration. Others, however, express concerns about the potential price hike and its impact on downstream industries. The Petroleum and Natural Gas Regulatory Board (PNGRB) will ultimately decide on ONGC’s bid. The board’s decision is expected to be closely watched by gas producers, consumers, and policymakers alike.
While the debate over the premium dominates the headlines, it’s important to remember the bigger picture. India’s reliance on imported gas is significant, and boosting domestic production, including CSG, is crucial for energy security. Balancing fair pricing with the need to incentivize CSG exploration is a complex challenge that needs a well-considered approach.
The ONGC’s bid for a premium on Bokaro CSG is just the first chapter in a larger conversation about India’s energy future. As the story unfolds, it will be interesting to see how the debate around pricing shapes the development of the country’s CSG sector and its impact on consumers and the overall economy.
