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The Government of India has introduced a substantial pricing adjustment for natural gas extracted from new wells by state-run companies, ONGC (Oil and Natural Gas Corporation) and Oil India Limited. As per the latest notification, gas extracted from new wells will be priced at a 20% premium over the Administered Price Mechanism (APM). ONGC communicated this update to stock exchanges on August 12, highlighting the potential positive impact on the company’s future projects.
The premium pricing strategy is a crucial move to make the development of new gas projects economically viable. ONGC emphasized that this change will enable the company to undertake projects in challenging fields, where the risks are higher, and the capital investments required are substantial. The revised pricing is seen as a necessary incentive to boost gas production from difficult terrains and fields that were previously considered less attractive due to the high costs involved.
The new pricing guidelines are also aligned with the Indian government’s broader energy vision, which aims to increase the share of natural gas in the country’s energy mix from the current 6% to 15% by the year 2030. This shift towards a greater reliance on natural gas is part of India’s strategy to transition to cleaner energy sources and reduce carbon emissions.
The impact of this pricing revision was immediately reflected in the stock market, with shares of ONGC and Oil India experiencing a notable surge. Both stocks saw an upward movement of over 2.6% by the end of trading on the day of the announcement. Over the past five trading sessions, ONGC’s shares have risen by more than 7%, while Oil India’s shares have gained an impressive 15%, indicating strong investor confidence in the potential benefits of the new pricing structure.
In line with these developments, ONGC’s board recently approved two major projects aimed at increasing domestic gas production. The first is the Daman Upside Development project at the Mumbai High offshore field, which has been allocated a budget of ₹7,800 crore. This project is expected to achieve peak production of around 5 MMSCMD (Million Metric Standard Cubic Meters per Day) of natural gas.
Additionally, ONGC’s board has given the green light to another project under the Discovered Small Fields (DSF-II) initiative, with an estimated cost of ₹6,000 crore. The project is expected to achieve a peak production capacity of around 4 million Metric Standard Cubic Meters per Day (MMSCMD) of gas. Both projects are expected to contribute significantly to the company’s overall production capacity, further bolstered by the new pricing guidelines.
The government’s decision to offer higher prices for gas from new wells is likely to attract more investment in the sector, as it improves the financial viability of exploring and developing new fields. With this move, India’s oil and gas sector is poised for increased activity, which could help the country achieve its energy goals and enhance its energy security in the coming years.