The government should frame a transparent mechanism for pricing of natural gas that rewards producers for undertaking risky upstream business, Ernst & Young has said.

“Framing of transparent pricing mechanism for natural gas is critical as it needs to reward gas producers for undertaking risky upstream operations,” E&Y said in its report ‘Synergy for Energy’ released here.

Currently, domestically produced natural gas is priced at $4.20 to $5.73 per million British thermal unit whereas imported gas cost three times that value.

Some industry players say domestically produced gas is under-priced and a disincentive for putting risk capital.

Mr Dilip Khanna, Partner, Oil & Gas practice, E&Y said: “Underdeveloped value chain and supply side constraints are severely limiting the enormous benefits that India can leverage by increased consumption of natural gas.”

Power and fertiliser segment accounted for the majority of gas consumption in FY11 at 39 per cent and 26 per cent respectively.

“Demand for gas is expected to increase significantly, driven by increased requirement, particularly from the power, fertiliser and city gas distribution (CGD) sectors,” it said.

E&Y estimated that the demand from power plants and fertiliser sector is expected to reach 207 million standard cubic meters per day and 106 mmscmd respectively in FY17.

“India’s current natural gas market is characterised by a supply deficit, primarily due to low domestic production and inadequate transmission and distribution infrastructure,” said Mr Khanna.

“India needs to develop a holistic approach by investing in all segments of the natural gas value chain to strengthen its domestic gas industry,” E&Y said.

Besides, the government should give income tax holidays for gas production as has been given on crude oil production.

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