India is probably the only country where more than a dozen different basic prices of natural gas prevail. The complexity increases once varying transportation charges, marketing margins and taxes are added to the basic prices before gas is delivered to end users. Natural gas consumers are being charged varying fuel costs, but at the same time they have to compete in the open market for selling their finished product. Therefore, a uniform price of natural gas is the immediate answer for the development of gas-based industries in India.
The current gas supply in India is 160 mmscmd (million metric standard cubic metre per day). Out of which administered prices of natural gas has a share of about 37%, which largely comes from public sector enterprises like ONGC and Oil India. This portion of gas is supplied at the cheapest rate, but even in this, there are six to seven different prices, varying from $1.8 to $4.75/mmbtu.
The prices of gas from joint venture companies are largely based on production sharing contracts (PSC), which account for about 12% of the total supply. Reliance?s D6 gas accounts for around 32% and the balance, 19%, is imported LNG.
The empowered group of ministers discovered the price of D6 gas (K-G basin) at $4.2 mmbtu (million metric British thermal units). The price of regassified LNG reflected a competitively higher price, depending on its outsourcing, shipment and regassification charges. Spot LNG on similar considerations reflected the highest price of natural gas, which climbed to even $20/mmbtu in the past. Under the situation, arriving at a uniform price for natural gas has been a matter of prime concern for government, producers, suppliers and consumers at large.
It appears that a differential pricing of gas for core and non-core sectors is one of the options being considered at the moment. Another consideration is a pool price, and the third being a market-driven price. A thorough analysis and consequences of all the three schools of thought is required before a final decision is taken.
Differential price for core/ non-core sector: Natural gas price @ $4.2/mmbtu for core sectors like fertilisers, power and cooking gas, and a market-related price for non-core sectors is likely to have several complications and would be detrimental to gas sector development at least until India reaches the stage of a mature gas market. A large number of small and medium customers falling under the non-core sector will be affected by this, and many would have to shut shop. It would also incentivise the tendency to trade off core sector gas to non-core sector for obvious reasons. The operational aspect of gas supply is likely to become more complex. There is a likelihood of regional imbalances in growth as well. This could also retard development of CNG in the transport sector.
Pooling of the gas price: Pooling the price of natural gas also has its hazards, though the concept has already been introduced in the country with the advent of Dabhol/ Ratnagiri Power Plant, a joint venture of NTPC & GAIL. In this case, the higher price of additional imported LNG as short-term/spot cargo was pooled with the comparatively lower price of long-term LNG tied up earlier and also with a part of domestic gas. This benefits one consumer at the cost of another.
Market-driven price: A market-driven price for natural gas is not the answer as gas cannot/should not be auctioned in this country in any case. Such a concept will cripple small and medium customers as they cannot compete with economically strong bulk consumers. Since supply is limited, the big fish would likely eat the small one. So a market-driven price cannot be adopted till we reach the status of a matured gas market.
It will take at least five more years for us to reach gas market maturity. Until then, the pricing has to be done on a compromise formula for the benefit of all players?government, producers, transporters, suppliers and consumers.
The pricing mechanism should not be producer(s)-specific. The tendency to produce less or more gas depending on commercial gains need to be curbed, and consumers should be allowed to operate under conditions of certainty to plan their input costs. All pricing formulas would require larger interaction among all stakeholders. It would be advisable to set up a committee to study the issue afresh.
The author is the director-general of Scope. E-mail: choubeyud@yahoo.com