New gas price: Govt ‘looking closely’ at D6 formula

The Centre is considering using the price formula used for Reliance Industries-operated D6 block as the basis for the new gas rates in the country.

A senior official said, “…this mechanism (D6 formula) is being actively looked at. It will of course come with certain modifications, but the formula was well debated and approved by a high-level ministerial panel.”

The dollar-denominated D6 gas price is linked to international crude oil movements with a cap. But it also allows the contractor to approach the Government for a revision if crude prices breach the ceiling..

Now, gas from various sources including coal bed methane is being sold to the power and fertiliser sectors in the $4.2/unit to $6.87/unit range.

On June 25, the Government deferred a decision on a new gas price by three months on the grounds that the issue required more discussions and consultations with stakeholders.

If it wants to expand the reach of piped natural gas, as envisaged in the Budget, the Government must have the price in place.

As an industry representative said: “The Government is pushing for a gas economy, which would mean relying on both domestic and imported gas. This will require a clear cut pricing policy to be in place.”

The C Rangarajan panel had suggested a pricing formula. But the Government did not favour this method as it relied on Japan’s consumption pattern, and trading references for the EU — the National Balancing Point — and the US — the Henry Hub. None of these has a connect with domestic gas.

Simultaneously, the Centre is reviewing the gas allocation policy. It wants to give higher priority to city gas distribution networks — more gas use in automobiles (CNG) and piped cooking gas (PNG) for households. At present, the fertiliser sector gets top priority followed by LPG units, power plants, and city gas distribution networks.

Asked about the power sector reaction, another official said, “the power sector wants gas produced from ONGC fields, which may not be possible. Besides, they have the option of using imported gas.”

With the output from the country’s largest gas fields (D6 block) dropping and no new finds going into production immediately, dependence on expensive imported has become inevitable. In fact, players like Reliance Industries have imported significant volumes of LNG to meet their captive demand.

The working group on Petroleum & Natural Gas Sector ({12th} Five-Year Plan) put the total demand for 2013-14 at about 371 million standard cubic metre a day (mmscmd), with that of the power and fertiliser sectors put at 153 mmscmd and 110 mmscmd, respectively.

During the same period, supply of natural gas to power and fertiliser sectors was 29.43 mmscmd (27.26 mmscmd from domestic sources and 2.17 mmscmd imported) and 42.95 mmscmd (30.30 mmscmd and 12.65 mmscmd).

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