No more cheap gas: Oil Ministry

03 November 2006

'No more cheap gas,' says the petroleum ministry. That's not very good news for power companies. CNBC-TV18 reports that the new gas pricing policy could also mean the end of sweetheart deals like the one between Reliance Industries and Reliance Natural Resources Limited.

Gas is not for burning, is the petroleum ministry's message to industry. A high-level committee constituted to lay down guidelines for pricing of natural gas has made it clear that market price for natural gas will prevail and the age of cheap gas is over. The sale price of gas will be linked to alternative fuel price like LNG or crude.

But this could mean celebrations for gas producers like ONGC and Reliance Industries. Currently, 90 per cent of ONGC's gas is APM gas and is sold at $1.9 per mmbtu. The company could now end up getting double of that.

Moreover, the government will also fix a reference price for natural gas, which would be the floor price. Buyers would have to buy gas at that price if not higher. Sources say that it could be in the range of $4-4.5.

The new policy would also put an end to sweetheart deals.

Competitive bidding and arms length pricing will now have to be observed in all gas contracts. Petroleum ministry officials say that effectively, the Reliance Industries and the Reliance Natural Resources Limited's gas contract would now be made redundant.