‘Pooled price’ is emerging as an answer to resolve the difference between stakeholders in the oil and gas sector and their counterparts in power for the proposed new gas price.

The Ministries of Power and Petroleum & Natural Gas are working together on a Cabinet note for such a proposal, a senior Power Ministry official said. This (proposal) is expected to be done in sync with the pricing of domestically produced gas, which the Government is to announce by the end of this month.

Cascading effect

Pooling is deriving an average price for gas produced from all domestic sources. It will also have an element of imported gas, sources in the know said. This is not for the first time the power sector has pitched for pooling of gas prices.

Earlier, when the Government had wanted to increase the price of domestic gas, the power sector was very vocal in stating that any increase over $5/unit (gas is million British thermal units) of the base price (excluding transmission charges, local taxes and levies, and marketing margins) is unviable for the electricity generators. According to power industry, every dollar’s increase in gas price will result in electricity costs going up by almost 45 paise a unit.

At present, there are several gas pricing regimes in the country — administered pricing mechanism, market-determined price based on pricing schedule and guidelines issued by the Government, gas sold on formula approved by the Government, price derived at arm’s length principle, and pricing under the production-sharing contract regime.

With the steep drop in domestic gas output, the Power Ministry has been making efforts to resolve the fuel supply issue of stranded gas-based capacities — 24,148 MW. According to the Ministry, the total gas required for the power sector is 93 million standard cubic metres a day (mmscmd), and what it currently gets is minimal.

Expensive imports

The current price, at which gas from various sources, including coal bed methane, is being sold to the power and fertiliser sectors is $4.2/unit (gas is measured in million British thermal units) to $6.87/unit excluding local taxes, marketing margins and transmission costs.

In fact, most players have refrained from using expensive imported gas, despite enjoying special dispensation of zero Customs duty, as few distribution utilities are willing to buy the electricity generated.

Meanwhile, a senior official-level panel comprising Secretaries of Power, Fertiliser and Expenditure, and the Additional Secretary in the Ministry for Petroleum & Natural Gas as member-secretary, has been holding consultations with all the stakeholders, including gas producers to decide on the new price for domestically produced gas, to be effective from October 1.

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