They’re About To Let Natgas Prices Soar In This Emerging Market

Key government document released this week in one of the most rapidly-changing commodities markets on the planet: India.

Following on the heels of reforms in India’s gold market, the national government posted a notice on its website saying that major changes are coming to exploration and licensing for oil and gas in the country.

The document outlines a number of changes to the process for awarding new petroleum licenses across India. With one of the biggest shifts being a revamping of natural gas prices.

The government said it will provide “pricing and marketing freedom” for all natural gas produced from licenses awarded under the new system. Suggesting that the old system of fixing natgas prices around $4/MMBtu will be abandoned.

That would be great news for gas producers here, with estimates suggesting that the current market rate for natgas would likely be around $8/MMBtu — double the fixed price, where drillers have struggled to make profits.

Another major shift will be the method for awarding oil and gas licenses. With the government proposing to shift to an open acreage licensing policy, where companies can choose the areas they’re interested in, and submit bids at any time.

That contrasts with the current system — where specific blocks are offered for licensing only during distinct bid rounds. The new scheme would offer much more flexibility and opportunity for E&Ps.

A final proposed change is a move to a revenue-sharing model for new contracts. Where the government will take percentage of topline revenues (after royalties) from oil and gas operations, rather than a split of profits, as was the case under previous contracts.

That last change could mean greater payments to the government from E&Ps. However, companies applying for licenses are allowed to bid their preferred percentages for revenue sharing — and then see if the government approves their offer. 

All of which sounds very positive for new projects — especially for natural gas — in the country. The government is accepting comments on the proposed changes until November 30 — watch for further announcements after that. 

Here’s to gassing up the tank,

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Dave Forest

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