Examine how would the new Hydrocarbon Exploration Licensing Policy (HELP) affect interests of consumers and producers. (200 Words)
Hydrocarbon Exploration Licensing Policy (HELP) has been introduced with a view to realize the Hydrocarbon vision 2005 that seeks to explore potential oil and gas reserves by 2025. The new policy will have the following impacts-
On Consumers-
- Impetus to exploration in deep water and ultra-deep water exploration through concessions would improve availability
- Moving towards revenue sharing contracts (RSCs) ensures that revenue is shared with government from first batch of production. Improved revenues can be used for consumer welfare
- Market linked pricing disincentives hoarding by producers and provide oil and gas at a better price
On Producers-
Positives:
- Open acreage policy allows the producer to acquire a hydrocarbon field at an early stage through bidding
- Single and unified license for all hydrocarbons promotes ease of doing business because no need to acquire new license for every single hydrocarbon
- Concessional royalty for difficult terrains allow producer to take exploration and improve profits
Negatives:
- Move towards RSCs can reduce investment by producers as they do not feel confident about their recoveries
- Imposing price cap on new gas produced from deep water and ultra-deep water fields can hamper investment in gas production
- Gas pricing formula is taken at average of gas prices of the Surplus producing ones like US, Russia, etc. The price is considered as market-efficient but think is also prone to market shocks. This pricing independence can hurt the consumers and downstream producers.
- The downstream production of Urea through Naphtha can also be victim to this market determined price. This will impact the Fertilizer policy and farmers.
The move is well intended an in line with Rangarajan committee’s recommendation of moving towards RSCs to avoid production hassles as in case of KG-D6 basin.