Technology and market-based pricing are two factors to lead shale gas revolution: PM Manmohan Singh

NEW DELHI: Prime Minister Manmohan Singh said on Tuesday that " technology and market-based pricing" are key factors that led to the global shale gas revolution, hinting at an expeditious implementation of new gas price formula before announcing a shale gas policy for private companies.

"The shale gas revolution has been made possible primarily by two factors – technology and market-based pricing. This is a combination that is essential to provide rapidly growing economies like ours with energy solutions commensurate with our needs," PM said while inaugurating the eighth Asia Gas Partnership Summit.

The PM’s remark is significant at a time when the industry is awaiting notification of new gas price formula approved by the Cabinet in June this year. The new formula would double the domestic gas prices and encourage energy firms to invest in the oil and gas sector particularly, in exploring coal bed methane (CBM) and shale oil and gas, government and industry official said.

"We have already moved a cabinet note to allow CBM exploration by Coal India Ltd in the coal blocks mined by the public sector undertaking and giving final touches to another Cabinet note that would allow exploration of shale resources by private firms in blocks held by them," a senior oil ministry official said.

ET had reported last week that the oil ministry plans to extend, albeit with a few stringent conditions, the recently approved shale exploration policy, which allowed only state-run ONGC and Oil India to explore shale resources in their existing oil and gas blocks.

The ministry has proposed automatic extension of lease period in blocks held by private companies if they are interested in exploring shale oil and gas. But only such blocks will get extension where the lease will expire after two years, oil ministry officials said.

Later, Oil Minister Veerappa Moily said he was awaiting comments from other government departments on a proposal to notify Cabinet’s five-month old decision to uniformly raise natural gas prices.

The government could not notify the Cabinet-approved gas price formula in June after some departments sought to deny higher prices for Reliance Industries’ KG-D6 fields that produced much lower gas than the approved production plan.

Based on the inputs of other departments, the oil ministry reviewed the decision and proposed to secure bank guarantees from RIL, which would be encashed if the company were found guilty of hoarding gas produced from its D6 gas fields. Earlier it was considering denying new rates to gas produced from the block’s old fields.

The pricing formula will be effective from April 1, 2014 for a period of five years, with the price being revised quarterly.

The price for each quarter will be calculated based on the 12-month trailing average price with a lag of one quarter (ie price for April to June 2014 will be calculated based on the averages for 12 months ended December 31, 2013).

Using the approved price formula, the effective gas price in April is estimated at around $8.40 per million British thermal unit, double the current price of $4.20.