Natural Gas

The Effect of New Gas Pricing Guidelines in India

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Domestic gas Producer Call for Higher Prices

As per the production sales contract signed by the Government with the selected contractor, the sale of gas is to take place at competitive arm’s length price discovered by the contractor and approved by the Government. Accordingly, the present price of $4.2per MMBTU was fixed in 2009 which is applicable till March, 2014.

However, the price of $4.2 per MMBTU is not found to be viable for sustenance of the domestic production of gas and all the operators are demanding increase in price. The Gujarat State Petrochemical Corporation (GSPC) owned by Government of Gujarat has been demanding a price of $13–14 per MMBTU for their blocks in KG D-6 basin. Similarly, Reliance Industries Limited (RIL) has also been asking a price in the same range. Even the Public Sector Undertakings such as ONGC and Oil India Limited have been repeatedly representing for increase in gas price as the production will not be viable at any price less than $7.

India's Gas Output Declines Sharply

The domestic gas production in the country has been falling drastically short of the demand and the present deficit of 142.78 SCMMD is expected to increase to around 234.26 SCMMD in 2016–17. Therefore, there will be huge dependence on the import of gas at much higher price of around $14 per MMBTU and above, which will simply become unaffordable for consuming sector. Moreover, the Economy cannot afford to continue with such a huge Import Bill which is around 160 billion US$ for the import of petroleum products. As per a reliable estimate, the subsidy burden to meet core sector demand through imported LNG can go up to as high as Re 1,20,000 crore, if the demand is not substantially met by domestic gas.

One of the main reasons for weak domestic gas production sector is viability of the production vis-à-vis price of the gas at which the producers are supposed to sell. The present price of $4.2 per MMBTU has not been found to be feasible and the Ministry is not approving the development plan for the lack of commercial viability. Around 3 TCF of gas reserve is waiting to be exploited.