City gas firms to get pro-rata allocation of expensive "new well gas": Govt

New Delhi: City gas distributors will receive a quarterly pro-rata allocation of "new well gas" in addition to regular domestic gas to meet customer demand, the Oil Ministry said in a statement.

Until now, new well gas was supplied to city gas companies through auctions. Going forward, it will be distributed based on each city gas firm's requirements. New well gas is priced at 12% of the crude oil price, while regular domestic gas is priced at 10%. Unlike regular domestic gas, which currently has a ceiling price of $6.75 per MMBtu (up from $6.50 over the past two years), new well gas has no price cap.

Currently, companies pay $6.75 per MMBtu for domestic gas. Crude prices have recently fallen to $65 per barrel, which will affect prices of both the regular domestic gas as well as the new well gas. At the current crude price of $65 per barrel, new well gas will cost $7.80 per MMBtu.

The government has been reducing the allocation of regular domestic gas to city gas companies for over a year, forcing them to rely on more expensive alternatives. New well gas remains the cheapest among these alternatives, which include imported gas and gas produced from domestic difficult fields.

New well gas refers to the incremental volume produced by ONGC and Oil India from their legacy fields through additional investments.

The government’s move to allocate new well gas “will lead to enhanced ability of city gas distribution entities to forecast demand and manage supply efficiently,” the Oil Ministry said.