Government bans sale of natural gas, coal-bed methane to self

The government has banned sale of natural gas and coal-bed methane (CBM) to self under its newly notified gas marketing freedom guidelines. This means that natural gas/ CMB producers will no longer be able to buy their own produce. 

The government had notified new Natural Gas Marketing Reforms  on October 15, 2020. The notification came after the Union Cabinet Committee on Economic Affairs approved the new gas reforms. 

The reforms give producers the freedom to discover the market price of gas through a standard e-bidding process. 

Key Details

• As per the notified guidelines, producers have the liberty to market or sell the gas produced to anyone including affiliates but the producer or any member of its gas field consortium cannot bid and buy the fuel.

• The government guidelines state that sale to affiliates will be allowed if affiliates participate in the open competitive process. However, the contractor or its constituents will not be able to participate in the bidding process.

• The notifications added saying that the seller of conventional natural gas and coal-bed methane and buyer cannot be the same entity. 

Why is this important?

• In 2017, Reliance Industries had outbid all other bidders and bought all the gas from its Sohagpur East and Sohagpur West CBM blocks in Madhya Pradesh.  Reliance had outbid state-owned GAIL India Ltd for gas from Sohagpur till March 2021.  

•The company used the gas at its Nagothane and Patalganga petrochemical plants in Maharashtra, Jamnagar and  Vadodara in Gujarat.

•GAIL had criticized the move saying that the bid had given Reliance a 14 per cent tax advantage, as stock transfer within the company is not subject to VAT.

•Subsequently, the Oil Ministry had sought an explanation from Reliance, which had responded saying that the gas was sold through an open and transparent bidding process through an independent third party in compliance with provisions of the CBM contract policy.

New Guidelines on Natural Gas/ CMD Sale

•The Government's newly notified gas marketing freedom guidelines aim to put such ambiguity to rest, as the October 15 notification states that the "April 11, 2017 notification on Early Monetization of CBM will stand amended."

•Under the new guidelines, the contractor shall get the bids invited through an electronic bidding portal and discover market price by following a transparent bidding process notified by the government.

•The bidding will be conducted through an independent agency, from a panel maintained by the Directorate General of Hydrocarbons (DGH). The DGH is currently in the process of empanelling such agencies.

•The government's notification restricts market freedom of the sellers. It states that the market price of the natural gas/ CMD shall be discovered through e-bidding.

•However, the policy will not apply to the contracts where the contractor is required to get the formula of sale approved from the Government or  is required to sell the gas as per the conditions specified under the contract. 

Significance

This means that the gas produced by state-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) from fields given to them on a nomination basis would continue to be governed by government-dictated price. The government dictated price currently stands at USD 1.79 per million British thermal unit.