‘Average out gas prices sectorally to make rates uniform’

‘Average out gas prices sectorally to make rates uniform’

New Delhi: A government-appointed consultant has advocated pooling or averaging out prices of natural gas supplied to sectors like power and fertilizer to make rates uniform for all plants across the country irrespective of source.

Spanish consultant Marcados Energy Market Pvt Ltd, appointed to recommend rationalizing multiple natural gas prices, in its final report stated that pooling of gas consumed by sensitive power and fertilizer sectors was the “most suited" option.

Gas is now sold at anywhere between $1 and $5.73 per million British thermal units (mmBtu), depending on the source. The consultant said sectoral averaging out of prices was better than a general cost-based pool covering all consuming sectors and all suppliers that could be achieved only through legislation.

Sectoral pooling “would serve the basic objectives without being heavy on administrative arrangements and cost," the report said. “It would also facilitate an eventual migration to competitive markets."

At present, the government fixes the price of gas produced from blocks given on nomination to state-run Oil and Natural Gas Corp (ONGC) and Oil India (OIL), while for others it is determined in line with production sharing contracts.

Gas from fields given to ONGC and OIL on nomination basis was sold at about $1.8 per mmBtu, while in the north east it was priced at $1-1.2 per mmBtu. Prices range from $3.5 to $5.73 per mmBtu for gas from the blocks that were awarded before the introduction of New Exploration and Licensing Policy (NELP) in 1999, while gas from Reliance Industries’ eastern offshore KG D6 field is priced at $4.20 per mmBtu.

The consultant suggested pooling or averaging out all prices to power and fertilizer sectors so that consumers get gas at the same price irrespective of the source.

“We believe that the sectoral pool option would leave sufficient room for price discovery for new gas supplies," it said.

Marcados said sectoral pooling would not require legislative changes “instead...(it) could work through a simpler policy directive".

“The policy would need to set out the detailed guidelines for constitution and operations of the pool, notify a pool operator, set out the institutional mechanism, and also the transition processes," it further added.

The consultant was, however, against pooling of gas transportation tariff. “We have examined the issue, but have found it to be inefficient and distortionary. It can also result in stranded assets that would prevent efficient gas market development."