Experts remark that oil and gas exploration business is a risky venture which depends on the vagaries of geological conditions and hence the government must incentivise investment in the sector through proper pricing policy.
Experts argue that the whole cycle of discovery to development of hydrocarbons may take 10 years. Yet, when costs are recovered after production, the cost of capital invested in successful blocks is not allowed to be recovered, leave alone exploration costs in unsuccessful blocks. Therefore, cost of production is not the basis on which prices can be fixed.
They suggest that the government must ensure certainty of getting a fair market price as promised in the production-sharing contract.
According to IHS Cera, an international energy consulting firm, India has an estimated 91 trillion cu ft (tcf) of potential resources. Of this, 27 tcf is discovered and waiting to be produced. When produced, it will substitute more than $350 billion of oil and gas imports, experts point out.
Energy exploration companies must invest on seismic mapping, geological studies, drilling rig, deepwater exploration well and other services to produce oil and gas from sea.
These involve huge cost and hence there is a need for appropriate pricing policy to recover these costs, experts argue.
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