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The Centre is under pressure to allow domestic gas players to sell certain volumes of their produce at market rates.
If the current estimates are any indication, the new gas price effective October 1 could drop below $4 a unit (gas is measured in million British thermal units).
With domestic gas production declining continuously and new discoveries yet to start flowing, low prices will be a ‘bad messenger’ as offshore discoveries become unviable below $7 a unit, said one of the industry players.
“The government is looking at the option of allowing a certain quantity of the produce to be sold at market price. Varied views are under consideration on the quantum of quantity — whether it will be 25 per cent or 50 per cent,” a senior official told BusinessLine .
Currently, domestic gas is available at $4.7 a unit, the landed cost of long-term contract (Qatar gas) is $12.5 a unit, and landed cost of gas bought from the spot market is less than $8.5 a unit.
The prices exclude local taxes and levies, marketing margins, and transmission charges.
The domestic industry has been maintaining that anything below $8 a unit is not viable for any volume of deep-water discoveries. Even the shallow water produce is not viable below $4 a unit, according to the industry. However, for deep-water discoveries, the government is working on a special package.
The Ministries for Petroleum and Natural Gas and Finance are working on the new price, but they do not want to take a hurried decision, another official said.
Asked if market price is considered, then what will be the status of that portion of Reliance Industries Ltd operated KG-D6 gas, which is under arbitration, the official said, “The volumes are not that high at the moment to worry about it.”
“What is clear is the fact that the government wants to incentivise domestic exploration and it will be looking at all aspects which will lead to this. Besides, after successfully deregulating diesel, the thinking increasingly within the government is to follow a similar route for gas. This will also help bring down subsidy (of fertiliser), which can be addressed differently,” the official added.
Every dollar change in gas price impacts the compressed natural gas (CNG, used as auto fuel) price by about ₹3 a kg, piped natural gas price (PNG, used for cooking) by around ₹2 per SCM, and the electricity tariff by 45-50 paise a unit.
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