Context: The government on Wednesday allowed complete marketing freedom for natural gas produced from non-regulated fields. The Union Cabinet, headed by Prime Minister Narendra Modi, approved a standard e-bidding procedure to discover the price of gas. While producers will continue to be barred from participating in such auctions, affiliates would be allowed to bid. However, the existing pricing mechanism for gas produced by state-owned ONGC and Oil India Ltd from fields given to them on a nomination basis would continue. The marketing reform would help add 40 metric million standard cubic metres per day (mmscmd) of production to the existing output of 84 mmscmd.

Background

• Earlier Government has taken transformative reforms in the upstream sector with a view to make investment easier focusing on ease of doing business. 
• The Open Acreage Licensing Policy (OALP) which is investor driven acreage auction process, has increased substantial acreages in the country. 
• However, no blocks were allocated between 2010 and 2017 which has impacted the long term viability of the domestic production. 
• Since 2017 more than 1.6 lakh sq.km area under 105 exploration blocks have been allocated. This will ensure sustainability of the domestic production in long run.
• Although government between 2016 and 2019 gave pricing freedom for all fields except those given to state-owned Oil and Natural Gas Corp (ONGC) and Oil India Ltd (OIL) on a nomination basis. But, there were restrictions on marketing including a ban on affiliates of producers buying the fuel and in some cases, a state nominee being mandated to offtake the gas. This restricted competition kept prices artificially low.
• Government brought a series of reforms in Gas sector and as a result investment of more than Rs. 70,000 crore is being made in the East coast. 
• Gas production from East coast will contribute to Atmanirbhar Bharat by meeting increasing energy needs of the country.
• In February 2019, Government implemented major reforms in upstream sector and brought paradigm shift by focusing on production maximization. Acreages under OALP rounds are being allocated based on work programme only in Cat II and Cat III basins.
• The domestic gas production has complete marketing and pricing freedom. All discoveries and field development plans approved after 28 Feb, 2019 have complete market and pricing freedom.

Aim of Poilicy

To provide standard procedure for sale of natural gas in a transparent and competitive manner to discover market price by issuing guidelines for sale by contractor through e-bidding. 

• This will bring uniformity in the bidding process across the various contractual regimes and policies to avoid ambiguity and contribute towards ease of doing business.

The policy has also permitted Affiliate companies to participate in the bidding process in view of the open, transparent and electronic bidding. 

• This will facilitate and promote more competition in marketing of gas. However, rebidding will have to be done in case only affiliates participate, and there are no other bidders.

The policy will also grant marketing freedom to the Field Development Plans (FDPs) of those Blocks in which Production Sharing Contracts already provide pricing freedom.
Objective of the policy 

• To prescribe standard procedure to discover market price of gas to be sold in the market by gas producers, through a transparent and competitive process, permit Affiliates to participate in bidding process for sale of gas and allow marketing freedom to certain Field Development Plans (FDPs) where Production Sharing Contracts already provide pricing freedom.

Key Reforms activities in the following areas

• The whole eco-system of policies relating to production, infrastructure and marketing of natural gas has been made more transparent with a focus on ease of doing business.
• These reforms will prove very significant for Atmanirbhar Bharat by encouraging investments in the domestic production of natural gas and reducing import dependence.
• These reforms will prove to be another milestone in moving towards a gas based economy by encouraging investments.
• The increased gas production consumption will help in improvement of environment.
• These reforms will also help in creating employment opportunities in the gas consuming sectors including MSMEs.
• The domestic production will further help in increasing investment in the downstream industries such as City Gas Distribution and related industries.

About Open Acreage Licensing Policy

• The OLAP was declared by the union government in June 2017.
• Under it, the potential investors choose the exact areas they are interested in, convey their interest to the government, which then places just those blocks up for bidding.
• Companies are allowed to choose the areas in which they want to explore oil and gas, under OALP. After choosing the area, companies put in an expression of interest which are then put on auction by the government.
• The process offers attractive and liberal terms like reduced royalty rates, no oil cess, marketing and pricing freedom, round the year bidding, freedom to investors for carving out blocks of their interest, a single licence to cover both conventional and unconventional hydrocarbon resources, exploration permission during the entire contract period, and an easy, transparent and swift bidding and awarding process.