The Telegraph
Thursday , January 24 , 2013
Since 1st March, 1999
CIMA Gallary

Drill begins on gas price rise

New Delhi, Jan. 23: The oil ministry has prepared a note for the Union cabinet that could pave the way for a hike in the price of natural gas produced by state-run ONGC and Oil India to $8-8.5 per million British thermal unit (mBtu) in this year itself. The proposal is on the basis of recommendations made by the Rangarajan panel.

However, Reliance Industries is unlikely to benefit because its price will come up for revision only in April 2014.

Oil ministry officials said a cabinet note had been moved accepting the panel’s suggestion to price domestic gas at an average of some global prices and the cost of imported LNG, instead of the present mechanism of market discovery.

The ministry wants the new guidelines to apply from 2013 itself on all domestically produced gas barring cases where prices are either governed by a definite formula prescribed in the production-sharing contract or where the Centre had fixed a tenure for the same.

Officials said the new price would apply to all gas blocks other than Reliance’s in the Krishna-Godavari basin off the Andhra Pradesh coast.

The clauses in the cabinet note will not only make Reliance ineligible for any hike before April 2014 but also require the company to seek the long-pending approval for revising the price of $4.2 per mBtu.

However, the move is likely to benefit ONGC, which cumulatively produces more than 50 million units of gas every day compared with Reliance’s 21 million units. Other producers include Cairn India, British Gas, Essar Oil and Oil India.

The ministry wants the formula to apply to all forms of gas — conventional, shale and coal-bed methane (CBM). The price shall be applicable to all consuming sectors uniformly.

Officials said taking into account last year’s publicly available consumption numbers and the prevailing price in the US, Europe and Japan, the formula suggested by the panel gave $8-8.5 per mBtu as the domestic price.

The country has 15 different rates ranging from $2.52 per mBtu to $6.77 per mBtu for gas. In contrast, imported LNG costs up to $15 per mBtu.

According to the 12th Five-year Plan (2012-17), the demand for gas will increase to 286 million metric standard cubic meters per day (mmscmd) this fiscal from 194mmscmd in 2011-12. By 2016-17, this is expected to grow to 466mmscmd. Domestic production will rise from 143mmscmd in 2012-13 to 232mmscmd by 2016-17.