Pricing predicament

Jun 20 2013, 01:14 IST
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SummaryThe government is pushing for a quick decision on gas pricing which will be applicable for forthcoming contracts during the remaining part of the 12th Plan period. The idea is to fix a price which will revive investment in gas exploration

What is the current and the projected demand-supply situation of gas?

Power and fertiliser sectors will be the major demand drivers in the next five years. Gas consumption by the power sector is expected to rise from the current 61 mmscmd to 207 mmscmd in FY17 and that by the fertiliser sector from the current 37 mmscmd to 106 mmscmd by FY15. According to the Rangarajan panel, demand projections for these two sectors are highly price-sensitive. Total gas demand is likely to grow from the current 166 mmscmd to 466 mmscmd in 2016 in FY17. Against this, domestic gas supply is projected to rise from 124 mmscmd in FY13 to 209 mmscmd in FY17 and imported LNG supply from 63 mmscmd to 150 mmscmd. This implies about 100 mmscmd gap between demand and supply, in the best case scenario.

Which are our major domestic gas sources?

Domestic gas is sourced primarily from nomination fields of ONGC and OIL and the joint venture fields operated by Reliance Industries (KG-D6), British Gas (Panna-Mukta & Tapti), Cairn Energy (Ravva) and Niko Resources. The balance demand is met through imports of regassified LNG (RLNG).

Is it possible to increase gas supply in a big way in the near future?

The sector has its own difficulties. Long gestation periods of projects in the pipeline requiring huge investments and inadequate capacity of LNG terminals are the major impediments. It will take at least 5-10 years for a discovery to reach production stage. It is quite likely that over the next five to seven years, the Indian gas market will move towards a situation where it will be distributed among a few sellers, with a huge demand-supply gap. This makes pricing of gas is a critical factor for enhancing domestic production.

How is gas pricing done?

Broadly, there are two pricing regimes—one for gas priced under the Administered Pricing Mechanism (APM) and the other for free market gas. The APM gas price currently is $4.2 per mmBtu. The free gas category includes domestically produced gas from New Exploration Licensing Policy (NELP) and pre-NELP fields. Under NELP, gas pricing has been formally approved only in case of RIL’s KG Basin gas discovery for which the price has been fixed at $4.2 per mmBtu for five years ending March 2014.

What can a revision in gas pricing do to help here?

The projects bound by production sharing contracts (PSCs) including RIL's KG-D6 are governed by the

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