Govt looking at differential pricing of domestically produced gas

The centre is reported to be considering a unit price of around $6.87 million British thermal units for natural gas produced from the Reliance Industries-operated KG-D6 block, even as Gujarat State Petroleum Corporation (GSPC), has asked for a price of about $13 per mmBtu for natural gas it plans to produce from its field in KG basin this month.

While it is unlikely that government may allow the $13 per mmBtu price that GSPC has asked for, petroleum minister Dharmendra Pradhan himself had earlier said prices of natural gas produced from different sources cannot be the same.

Pradhan also said the government would strike a balance between the consumer and the producer while announcing new rates.

GPSC, which is all set to begin production from its Deen Dayal West (DDW) gas field in Block KG-OSN-201/3 off the Andhra coast, wants the $13.mmBtu price approved immediately.

GSPC has written twice to the petroleum ministry since the Narendra Modi-led government took office, requesting approval of its pricing formula as provided in the production sharing contract (PSC), so that DDW can begin producing and gas sales commence, official sources said.

While the government has not acceded to GSPC's demand, it is unlikely that natural gas produced from its gas fields would be priced at double the rate approved for an adjacent field operated by Reliance and its partners.

GSPC, a Gujarat government-owned company, wants DDW gas to be priced at a rate equivalent to the price at which India imports liquefied natural gas (LNG) on a long-term basis from Qatar.

On the other hand, petroleum ministry officials are reported to be looking at a pricing mechanism based on a revised formula, which levels down the producer price of $8.33 mandated by the Rangarajan Committee formula to around $6.87 per mmBtu (See:Govt trying to keep revised gas price below $6.8 per mmBtu).

Petroleum ministry sources said, ''…this mechanism (D6 formula) is being actively looked at. It will of course come with certain modifications, but the formula was well debated and approved by a high-level ministerial panel.''

The dollar-denominated D6 gas price is linked to international crude oil movements with a cap. But it also allows the contractor to approach the government for a revision if crude prices breach the ceiling.

Now, gas from various sources, including coal bed methane is being sold to the power and fertiliser sectors in the $4.2/unit to $6.87/unit range.

The government last month deferred a decision on a new gas price by three months on the ground that the issue required more discussions and consultations with stakeholders.

The government cannot move ahead with a gas policy without having a pricing policy in place.

''The government is pushing for a gas economy, which would mean relying on both domestic and imported gas. This will require a clear cut pricing policy to be in place,'' industry sources pointed out.