The new price for domestically-produced gas is likely to be based on the gross heat value, which will automatically raise the rate by about 10 per cent or 60 cents.
The thinking in the Government has been to keep the base price of gas between $6 and $6.5 per million British thermal units. If it is based on the gross calorific value (GCV), the prices would go up automatically by 10 per cent, which would be advantageous for the producers. The heat produced from natural gas is measured in calorific value.
“This is part of the proposals before us. The Government wants to ensure that the final pricing mechanism is fair to all — the buyers and the sellers — while not affecting the Government’s share of profit,” an official privy to the development told
Since liquefied natural gas (LNG) is imported on GCV basis, sellers prefer this benchmark, industry sources said. The issue cropped up when the Reliance Industries-BP-Niko combine based its proposed price, applicable from April 1, on GCV. But this was not acceptable to the buyers, as it would mean gas costing more.
Domestic gas producers, under the aegis of the Association of Oil & Gas Operators, want the Government to be clear on the method of price calculation — whether it will be on the basis of gross or net calorific value (NCV), and if it should be rupee denominated.
Another official said the Government is working on two issues simultaneously — price for domestically-produced gas and pool pricing (mix of indigenous and imported gas) for power and fertiliser sectors. It will also need to clarify how the gas produced from fields given to contractors before the licensing rounds, like that of Cairn India’s Rajasthan block, will be priced. At present, the contracts for such fields allow market price to the producers.
Opinions have also been divided on whether domestic gas rates should be linked to the crude oil price. But with no other immediate benchmark available, linking it to crude oil was the best option before the policy-makers, an industry person said.
Currently, the base price of gas sold under administered price regime is $4.2/mmBtu, same as the rate for the Reliance Industries Ltd-operated NELP block in the East Coast.
Domestic gas is also being sold at a base price of $5.7/mmBtu. The August average rate of imported gas on long-term basis is about $15/mmBtu, while the spot rate is $16/mmBtu.
“We are ready with views and proposals on gas pricing whenever the Cabinet Committee on Economic Affairs wants to take up the issue. By then we also hope that some clarity on RIL’s gas price will be available,” a senior Petroleum Ministry official said.
For the second time, on September 24, the Modi Government shied away from taking a decision on the new price of domestically produced natural gas. The decision has been deferred to November 15.