A government-appointed consultant has advocated pooling or averaging out prices of natural gas supplied to sectors like power and fertiliser to make rates uniform for all plants across the country irrespective of source.
Spanish consultant Marcados Energy Market Pvt Ltd, appointed to recommend rationalising multiple natural gas prices, in its final report stated that pooling of gas consumed by sensitive power and fertiliser sectors was the “most suited” option.
Gas is now sold at anywhere between USD 1 and USD 5.73 per million British thermal units (mmBtu), depending on the source. The consultant said sectoral averaging out of prices was better than a general cost—based pool covering all consuming sectors and all suppliers that could be achieved only through legislation.
Sectoral pooling “would serve the basic objectives without being heavy on administrative arrangements and cost,” the report said. “It would also facilitate an eventual migration to competitive markets.”
At present, the government fixes the price of gas produced from blocks given on nomination to state—run Oil and Natural Gas Corp (ONGC) and Oil India (OIL), while for others it is determined in line with production sharing contracts.
Gas from fields given to ONGC and OIL on nomination basis was sold at about USD 1.8 per mmBtu, while in the North—east it was priced at USD 1—1.2 per mmBtu. Prices range from USD 3.5 to 5.73 per mmBtu for gas from the blocks that were awarded before the introduction of New Exploration and Licensing Policy (NELP) in 1999, while gas from Reliance Industries’ eastern offshore KG D6 field is priced at USD 4.20 per mmBtu.
The consultant suggested pooling or averaging out all prices to power and fertiliser sectors so that consumers get gas at the same price irrespective of the source.
“We believe that the sectoral pool option would leave sufficient room for price discovery for new gas supplies,” it said.
Marcados said sectoral pooling would not require legislative changes “instead...(it) could work through a simplier policy directive“.
“The policy would need to set out the detailed guidelines for constitution and operations of the pool, notify a pool operator, set out the institutional mechanism, and also the transition processes,” it further added.
The consultant was, however, against pooling of gas transportation tariff. “We have examined the issue, but have found it to be inefficient and distortionary. It can also result in stranded assets that would prevent efficient gas market development.”
“Instead, we favour the idea of co—ordinated pipeline development across the country, and charging of tariffs for pipeline use on a rational economic basis,” the report said.
It recommended creation of a roadmap for migration to competitive wholesale markets for gas, which would typically be through bid—based pools and feature a large number of independent shippers.
“We believe that this will lead to eventual reduction in the price of gas imports by India, and aid the process of the country becoming a major player in the international gas market,” the report added.
Currently, three broad categories of natural gas prices prevail in the country — APM or government controlled rates, price of gas from for privately operated fields and imported LNG.
“Even in case of APM gas, there are different prices prevailing for priority sector (power and fertiliser), North Eastern region) and non priority sectors.
“To add to complexity, seven more types of prices are prevalent for gas coming out of production sharing contract — be it for Panna Mukta and Tapti fields (of BG Group), (Cairn’s) Ravva field, KG basin (of Reliance Industries) or other fields,” the report said.