Column : Can’t do gas pricing in a vacuum
A committee under C Rangarajan, mandated to suggest the design of future contracts for exploration and production of oil and gas, has also recommended a basis/formula to price domestically produced gas. It has suggested price to be benchmarked to four series of international prices, viz Henry Hub (HH) in the US, National Balancing Point (NBC) in the UK, netback prices of sources of LNG supply for Japan, and netback price of Indian imports of LNG at well head of exporting countries.
The weighted average of two sets of prices—HH in the US & NBC in the UK and netback from LNG exports to Japan and India—would be the price of domestically produced gas. It will be a daunting task, if not impossible, to determine the netback from LNG exports to Japan and India. It is also doubtful whether international prices in the US and the UK would be relevant to Indian situation.
Even so, imported gas being only 20% of total gas supply in India, how can international price serve as a credible reference point? Nonetheless, the committee has given some basis as against none at present. (Under PSC, operators are expected to discover prices by inviting competitive bids from potential customers. However, this was ignored when the EGoM fixed the price in 2007.)
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