Ahead of the meeting of a panel of ministers on natural gas, a body of oil and gas producers such as Reliance Industries has opposed pre-allocation of the scarce fuel saying it distorts demand-supply equation and eliminates possibility of discovering free market price of gas.
An Empowered Group of Ministers (EGoM) headed by the Finance Minister, Mr Pranab Mukherjee, is likely to meet tomorrow to consider changes in the natural gas allocation policy.
The panel, which is meeting for the first time in more than 18 months, is also to consider the Saumitra Chaudhuri report that has recommended reserving or preferential allotment of domestically produced natural gas only to fertiliser and power plants.
The Association of Oil and Gas Operators (AOGO), whose members also include BP plc of UK, Cairn, BG Group and BHP Billiton, has written to Mr Pulok Chatterji, Principal Secretary to the Prime Minister, saying the recommendation “contradicts the contractual commitments of the Government made in the production sharing contracts (PSC) and New Exploration Licensing Policy” for market discovery of price of gas.
Once gas is reserved for certain sectors, they are not likely to quote optimal price for gas and instead would under-price the scarce fuel.
Pre-allocation of gas, AOGO said, “distorts demand-supply equation and eliminates the possibility of discovering free market price of gas.”
“Discovery of free market price of gas is a fundamental feature of PSC signed under NELP... there has been a huge escalation in costs for developing oil and gas fields over the last few years. An incorrectly specified domestic gas price will retard domestic gas development,” it added.
The EGoM meeting tomorrow may consider changes in gas allocation in view of a sharp drop in output from RIL’s eastern offshore KG-D6 block.
Officials said the Oil Ministry had proposed to the EGoM to stop gas supplies to power producers that do not sell electricity at regulated tariff and cancel allocation to a few merchant power plants in Andhra Pradesh that currently sell electricity at way above the tariff determined by the sector regulator.
Also, it proposes making future gas allocations to only urea fertiliser plants and fuel supply to phosphates and potassium fertiliser producers be stopped.
KG-D6 gas output has fallen to about 35 million cubic metres per day after touching a peak of 60 mmcmd in March 2010, prompting the Ministry to suggest changes in the allocation policy.