Natural Gas The Effect of New Gas Pricing Guidelines in India

Editor: Dominik Stephan

The Government recently approved new Gas Pricing Policy Guidelines which generated a large scale interest among various stake holders. To provide further clarify on the subject and to explain the rationale behind this decision, following points would serve as Ready Recknor on the subject.

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(Picture: PROCESS)

New Delhi/India – The Cabinet Committee on Economic Affairs recently (28.6.2013) decided to review the domestic natural gas price policy on the basis of recommendations made by the Dr Rangarajan Committee constituted by the Prime Minister in May, 2012. Accordingly, a new domestic natural gas pricing guidelines2013 has been approved, which will be applicable to all natural gas produced domestically and to all consuming sectors informally.

These guidelines shall apply from 1 April 2014 and shall be applicable for five years after which the market discovery price could be adopted as per the road map being prepared by the Dr Kelkar Committee.

Fixed Price for Domestic Gas on Import Csts

As per the Rangarajan formula, the price will be fixed on the basis of the average of net back price of Indian gas imports and also the weighted average of the price at international hubs. The underlying principle is that the Indian producer should get a similar price what the gas producers elsewhere are getting.

On the basis of the said formula, the price for natural gas in India for the quarter April–June 2013 comes to $6.83 per MMBTU. During the course of circulation of the Cabinet Note, the Planning Commission suggested a price of $11.18 per MMBTU, Ministry of Finance $6.99 to 8.93 per MMBTU, Department of Fertilizer $6.68per MMBTU, whereas Ministry of Power opined that we should stick to the present cost plus regime which comes to around $4.14per MMBTU.

The History of India's Gas Market

The domestic oil and gas sector is mainly administered under New Exploration Licensing Policy (NELP) introduced in 1997 by the United Front Government and the first round of bidding was announced by NDA Government in 1999. So far, nine rounds have already taken place.

However, the performance of the NELP Blocks has been far from satisfactory due to a variety of reasons which is evident from the fact that out of 110 discoveries announced under NELP; only six are presently under production.