Price may be tweaked for end-user; guidelines aimed at preventing cartelisation

Video: Chidambaram blames gas price hike on low domestic output

In a bid to allay the fears of key gas consumers — power and fertiliser units — about a hike in prices, the Finance Minister, P. Chidambaram, said the rise in natural gas prices from April 1, 2014 would only be at the producer’s end.

Briefing reporters here on Friday, the Minister said there was still time to decide on the end-price of gas for fertiliser and power consumers. He, however, did not indicate whether this would be in the form of a subsidy or price-tweaking.

On Thursday, the Cabinet Committee on Economic Affairs (CCEA) had decided to almost double the price of domestically produced natural gas from $4.2/mmBtu at present, if all external factors, such as taxes and the rupee-dollar exchange rate remained at current levels.

Chidambaram said: “What we have decided is the output cost...we are aware of the concerns raised by the Power and Fertiliser Ministries, and those concerns will be duly addressed.”

The CCEA approved the fixing of gas prices based on recommendations of the C. Rangarajan Committee on the production sharing contract mechanism in the petroleum industry.

The present gas pricing policy under the New Exploration Licensing Policy (NELP), approved by the Government for five years beginning April 2009, is due for revision from April 2014.

The recommendations approved on Thursday, known as the Natural Gas Pricing Guidelines, 2013, will be valid for five years. The guidelines are aimed at incentivising investment in the upstream sector to take production to optimum levels, especially in exploitable reserves. The guidelines are also aimed at ensuring that producers do not form a cartel because of the huge unmet demand. This will protect consumer interests, said Petroleum and Natural Gas Minister, Veerappa Moily.

The new guidelines will be applicable for all domestically produced gas, but will not cover gas for which prices have been fixed contractually for a certain duration, till the end of such period. The guidelines will also not be applicable where the contract provides a specific formula for natural gas price indexation/fixation.

The formula is based on the weighted average of wellhead netback price (or price at the wellhead) of Indian LNG imports, excluding spot purchases at the wellhead point of exporting countries and weighted average of the prevailing price at the global trading points of transactions — Henry Hub (traded prices in the US), National Balancing Point of the UK, and netback price at the sources of supply for Japan. At present, Henry Hub averages around $4/mmBtu and National Balancing Point at $9-10/mmBtu. The netback price at the sources of supply for Japan at current rates would be around $10/mmBtu, and for Indian LNG imports, the netback price would be $7/mmBtu. At these rates, Indian natural gas prices would be around $7/mmBtu. The price for domestic gas producers in 2014 — if all these factors remain the same — would be around $8.4/mmBtu.

The Secretary, Petroleum and Natural Gas Ministry, Vivek Rae, said a quarterly review of gas pricing would be notified in advance using data for four quarters, with a lag of one quarter.

(This article was published on June 28, 2013)
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