A high-level government committee, headed by Planning Commission member, Saumitra Chaudhari, on Monday ruled out pooling of natural gas prices, stating that domestic natural gas users could not be asked to subsidise costlier imported liquefied natural gas (LNG).
The report of the committee is a complete U-turn from its previous interim report a few months ago in which it had suggested averaging out the price or polling of prices of costlier imported LNG with cheaper domestic gas. The pooling of prices would have resulted in users of cheaper domestic natural gas paying double the existing rates so that imported LNG could be sold at affordable rates.
However, in its final report, the committee has stated: “The committee does not recommend a pooling mechanism for natural gas at the overall level, nor does it recommend a price pooling on sectoral basis.”
The report, submitted in the last week of August, backed preferential allotment of domestic gas only for priority sectors such as fertilizers and power. It recommended that the rest of the consumers such as steel plants be allocated imported LNG.
Domestic gas is currently priced at $4.2 to $5.5 per million British thermal unit (mmBtu) while the fuel imported in ships in its liquid form or LNG is priced at $10 to 14 per mmBtu. “The non-priority users operate in a market environment where their output prices are market-driven with no regulatory burden and hence they should be able to pass on the higher costs of gas feedstock,” it said.
State-run Gas Authority of India Limited (GAIL) and Petronet LNG, which were part of the inter-ministerial committee, had been lobbying hard for pooling of gas prices as LNG currently being imported on a long-term contract from Qatar will cost over $12 per mmBtu from 2014 while a new contract with Australia was priced at $14.5 per mmBtu. “The recommendation put forth here does not envisage any form of pooling at the all-India level cutting across industries. What it does is to preferentially allot available domestic natural gas to fertilizer and power sectors with a certain quantity reserved allotment for the city gas/CNG sector,” it said.
