Natural Gas Market Little Prospect of Naked Gas–on–Gas Competition in India

Author / Editor: M. C. VAIJAYANTHI / Dominik Stephan

India's gas market is far from open competition, as the price for domestically produced natural gas is regulated by the government. Now privately owned gas producers have been lobbying for domestic gas prices to be linked to the price of imported LNG.

The dawn of a new age for India's natural gas producers?
The dawn of a new age for India's natural gas producers?
(Picture: Woodside)

The Indian government is intent on introducing gas pricing policy reforms to incentivise natural gas production, informed Prime Minister Dr. Manmohan Singh on March 23. “We are conscious that remunerative energy prices are needed to ensure expanded energy supply,” he told in the recently concluded Asia Gas Partnership Summit in New Delhi.

However, the pricing of natural resources like oil and gas should be conducted within a framework of governmental and regulatory oversight, he added. Moreover, the economic exploitation of these resources should benefit both investors and the people of India, he assured. So, there is little prospect of naked gas-on-gas competition yet. Gas produced by the state-owned upstream oil companies and from the Krishna Godavari basin block owned by Reliance Industries is priced at US $ 4.20/MMbtu; gas produced from some of the blocks have been allowed a price of over US $ 5.5/MMbtu. Earlier this year, BP India had already called for market determined prices for the Indian domestic natural gas production.

“Government Committed to Find Viable Solutions”

While gas produced from the blocks offered under the New Exploration and Licensing Policy are allowed free pricing based on market determined rates, the prices must be approved by the oil ministry. “Our government is committed to taking all possible steps to find viable solutions to meet the concerns of the gas industry,” Dr. Singh declared.

Prices for Domestic Natural Gas Regulated

Privately owned gas producers have been lobbying for domestic gas prices to be linked to the price of imported Liquefied Natural Gas (LNG). But Energy Minister S. Jaipal Reddy ruled out any immediate plans for an increase in domestic natural gas prices, in comments to the press....

India's Ministry for Chemicals and Fertilizer defends the subsidiaries for natural gas for the production of potassic and phosphatic (P&K) fertilizers. By the end of 2011, voices were raised in India to cut supplies for P&K fertilizers in favour of urea production. More in India's Ministry for Chemicals and Fertilizer Defends Gas Subsidiaries

However, the ministry has revived a dormant debate on a gas pool pricing mechanism, which would narrow the gap between the low price of domestic natural gas and higher priced imported LNG. India’s LNG imports are expected to increase.

New Fields and Pipelines go Onstream

The capacity is due to reach 50 million mt/year by 2017 from around 14 million mt/year at present, Reddy said. State utility GAIL’s 2,200-km pipeline from Dahej in Gujarat on the country’s west coast, where its largest LNG terminal is located, to Bhatinda in Punjab in northern India, was opened on March 25. The pipeline’s capacity is 66 million cu m/d. GAIL has plans to buy US-produced LNG from Cheniere (IGR 688/3),

and it has also made a bid for LNG assets in Mozambique via Cove Energy (IGR 624/29).

Pakistan Interested in Importing Gas from India

Muhammad Ejaz Chaudhry, Secretary of Pakistan’s petroleum and natural resources ministry, said that Pakistan was interested in importing gas from India. Bhatinda is close to the border with Pakistan, thus opening up the possibility of a pipeline to ferry gas further from Bhatinda to Lahore.

India is also now mapping its shale gas resources and expects to put in place a regulatory regime for licensing rounds by the end of 2013, Dr. Singh revealed.

More about the gas boom in Asia–Pacific? See also our Gallery: Natural–Gas–Boom in Asia–Pacific!

* Source: Platts International Gas Report