An inter-ministerial panel this week will deliberate on subsidising costlier imported LNG by making consumers of cheaper domestic natural gas pay more.

The inter-ministerial committee, headed by the Planning Commission Advisor (Energy), will hold its first meeting this week on a mechanism for averaging out the prices of costlier imported LNG with cheaper domestic gas, official sources said.

The panel was constituted after Petronet LNG, India’s largest liquefied natural gas importer, contracted LNG from Australia at a price that is four times the rate at which most of the natural gas produced from domestic field is sold.

Australian LNG, which is to be imported at Petronet’s under construction Kochi terminal in Kerala from 2014, is indexed at 14.5 per cent of crude oil price — the loading price at Australian port will be $14.5 per million British thermal unit at $100 a barrel oil price.

After adding $1-1.2 per mmBtu towards cost of shipping, the gas in its liquid form in cryogenic ships to Kochi, 5 per cent customs duty ($0.77 per mmBtu) and the cost of converting the LNG into its gaseous state, the gas ex-Kochi will cost about $17 per mmBtu.

This compares with $4.2 per mmBtu price of majority of gas, the sources said, adding that the panel will suggest how these two prices can be pooled or averaged out to make the gas affordable to power and fertiliser units in Kerala.

However, the constitution of the committee has come in for questioning by some quarters, who say inclusion of the officials of Petronet, a private company, and the state-owned gas utility GAIL are a conflict of interest.

Petronet and GAIL, which is a promoter of Petronet and principal marketer of the Australian LNG, are naturally inclined towards price pooling.

Instead, upstream regulator DGH, they say, should have been co-opted as a member of the committee to detail the implication and complication of such proposal on contracts of the fields awarded under the New Exploration Licensing Policy.

Previously, GAIL had commissioned a study by Spanish consultant Mercados on the feasibility of pooling of over a dozen different rates at which natural gas produced from different fields in the country is sold.

The price for domestic natural gas ranges from $2.71 to $5.73 per mmBtu, LNG imported from Qatar on long-term contract is currently imported at USD 6.92 per mmBtu and from spot market at $8.50-9.50 per mmBtu.

Sources said the terms of reference (ToR) of the committee in the present form pre-suppose that the decision of a pooled price has already been taken and that the committee was only to devise the pool operating guidelines, without even evaluating the various options.

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