Gas prices may rise, deregulation likely

In a move that may escalate the natural gas prices, the Centre is learnt to be seriously considering a proposal to allow its cost to be determined by market forces.

A Cabinet note circulated by the petroleum ministry has this clause, and once approved, natural gas prices may go up by several notches.

The government at present regulates the price of natural gas, which now stands at around $4 per mmBtu (British thermal unit). If natural gas prices are freed, or allowed to be fixed by exploration firms that excavate gas, they may go up to around $15 to $20 per mmBtu, industry sources said.

This kind of pricing freedom for natural gas is being considered for future rounds of auction of the natural resource, the sources added.

It is learnt the proposal had first been discussed within the government around six months back.

The petroleum ministry had in November 2015 distributed a consultation paper seeking the views of the oil and gas industry on the freeing of natural gas prices. Industry leaders supported the government’s move, and this led to the insertion of the clause in a Cabinet note that has now been circulated afresh to various ministries, seeking their views on the matter. Sources told this newspaper that once these views are received from the ministries and departments, the note could be sent for Cabinet approval as soon as possible.

The thinking in the government is that as the current price of gas is too low to support exploration and production costs, freeing its price and allowing it to be determined by market forces may incentivise production of the natural resource in future. Several major exploration firms have for long been seeking freeing of natural gas prices, as they claim the current prices don’t incentivise the high cost of exploration.

In its consultation paper, which the petroleum ministry had floated in November last year, it said it had provided pricing and marketing freedom for natural gas for auction of marginal fields.