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GAIL (India) has signalled the end of cheap gas, indicating a price of $13.25-13.5/million British thermal unit (mmBtu) for its imported gas from 2016-17.
Add to this indicative price the levies, the marketing margin and the transmission tariff, then the gas is expected to cost $18-19/mmBtu. The final price will vary from State to State depending on local levies.
At present, domestically produced gas sells at $4.2-$5.7/mmBtu, under the administered price regime. Spot prices rule at $14/mmBtu, and long-term contracts at $ 12/mmBtu. These prices are exclusive of local taxes, marketing margins and transmission tariff.
This is a clear signal that the days of cheap gas are getting over, say those tracking the industry. This also means that electricity generated from gas-based power units and piped natural gas used for cooking will get expensive.
GAIL recently released the indicative rates considering a crude price of $100/barrel and Henry Hub price of $5/mmBtu. Henry Hub is the pricing point for natural gas futures contracts traded on the New York Mercantile Exchange.
Long-term deals
GAIL has a long-term agreement for 3.5 million tonnes annually with Sabine Pass Liquefaction, LLC, a subsidiary of US-based Cheniere Energy Partners, LP. This gas will come in 2016-17. It has also signed a long-term deal with Gazprom for 2.5 million tonnes a year from 2018-19. Besides these, GAIL imports spot cargoes. It wants to import 34 cargoes in 2013-14 against 16 in the previous year.
B. C. Tripathi, Chairman and Managing Director, GAIL, had earlier told Business Line that “in the international market, the gas price will remain more or less at the same level… I see gas price around $14/mmBtu. But, with this, I also feel that mixed indexation could be happening as far as gas trading is concerned.”
Declared goods
GAIL has been persistently lobbying that gas should be treated as declared goods, and a uniform tax structure should prevail in all States. Some States have abnormally high local taxation on natural gas, as a result of which the delivered price of gas could be higher there. The Government is also actively considering revision of domestically produced gas price. The Prime Minister’s Office (PMO) and the Cabinet Secretariat, while returning the Cabinet note sent by the Petroleum & Natural Gas Ministry on gas pricing, have asked the Ministry to once again seek inter-ministerial consultations.
Sources said the PMO wanted the views of the ministries concerned as there were some changes in proposal – these were circulated for the Empowered Group of Ministries and now for the Cabinet Committee on Economic Affairs.
The Petroleum Ministry, according to reports, had proposed a price of $6.775/mmBtu, while the Power Ministry has been saying that any price beyond $5/mmBtu is unviable for the sector. The Fertiliser Ministry had also expressed its views.
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