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POV : Is gas price pooling the answer to existing disparities in gas prices for consumers?

By , ,
Industry : ONG

India is a unique country which has different gas prices for various segments of consumers. With increasing use of gas in the country and its consequent rise in price, is the time ripe to look at gas price pooling mechanism, which promises uniform gas price for all the industry users. InfralineEnergy’s Sangeeta Tanwar seeks industry opinion on the issue.

Mr Manu Srivastava,Director – Natural Gas,Ministry of Petroleum and Natural Gas

The Government is examining pooling of prices of all forms of gas. Once pooling becomes a reality, things will become easier for new customers. However, pooling makes sense only when imported liquefied natural gas (LNG) is a smaller component of indigenous gas. Average price for gas for everyone will then increase in price pool mechanism with higher quantities of imported LNG. Adding LNG to the gas pool cannot be an infinite solution. More aggressive players are keen on gas price pooling. Increased volumes of re-gassified liquefied natural gas (R-LNG) will make pool price go up.

However, we need to look at gas price pooling with a view of making gas available to all at a uniform price. Why should a consumer in one part of the country pay more, when another consumer is paying less for the same gas? Also, new LNG contracts are available in the world market at 13-14 percent of crude price. Now, for US$ 90/barrel crude, this amounts to US$ 12/MMBTU of gas. Add to this shipping, re-gas charges, customs and transportation, the final gas price would be over US$ 16/MMBTU. Setting up and operating power plants at such high prices is not viable at all. Thus, pooling of gas prices to increase gas volumes and bringing down the gas prices within the reach of consumers turns out to be a viable option.

Mr A K Balyan,MD and CEO,Petronet LNG

We are a unique country where there exist eight to 10 different prices for domestic gas. We also have varying five to six contract prices for gas. All this has happened because various contracts have been signed at different periods of time in the absence of any sort of gas price mechanism.

The Planning Commission is looking at various pooling options. The objective of gas price polling is to moderate and bring about affordable range of prices for all the stakeholders dependent on gas. We need to question ourselves as to why the same gas in Gujarat is priced differently from Punjab. The idea behind gas price pooling is to make sure that there is equitable pricing of gas for the industry taking into consideration factors such as transportation cost and other required services.

Also, pooling of domestic gas and LNG could dampen the price volatility of LNG and help in the development of gas markets and infrastructure in the country. Undoubtedly, gas price pooling is immensely difficult exercise as it involves various complexities. For example, while deciding common price for available gas, one has to take into account facts such as cost of producing gas from deep waters is higher in comparison to producing gas from on-shore. All these factors need to be taken care of while arriving at a uniform gas price. Also, it’s too premature to say whether it will be sectoral pooling by way of clubbing power and fertilizer sector together or pooling the prices of domestic gas and LNG.

Mr Rajiv Mathur,Executive Director, Marketing (Gas),GAIL India Ltd

The biggest advantage that gas price pooling offers is that it will help increase the available volume of gas. Secondly, it will help reduce the huge disparities that currently exist in the price of same gas available at different geographical locations. At present owing to varying gas prices, the cost of operation of a plant turns out to be different for each producer.

With gas price pool mechanism coming into operation, the producers would get the price that they have already agreed to with their consumers and duly approved by the government as per the production sharing contracts (PSC). With pooling of gas, LNG will become relatively cheaper especially for anchor load consumers. As of now R-LNG accounts for 30 percent of the gas available in Indian market. Pooling of gas prices will also make costlier R-LNG cheaper and viable for Indian consumers. It will give us more option to source LNG for a judicious mix of gas. Undoubtedly, pooling will thus increase the consumable volume of gas in the country.

(InfralineEnergy"s "Points of View" (POV) is an initiative for encouraging dialogue between various stakeholders of the Indian energy sector on contemporary subjects. For feedback, please write to feedback@infraline.com)