Indian Regulator to Push for Gas Price Decontrol

India's Petroleum and Natural Gas Regulatory Board (PNGRB) is aggressively pushing for deregulation of gas prices to encourage private investment and lure oil companies to invest in exploration and ramp up production from existing fields, a senior regulatory official said.

The government has fixed the price of natural gas at $4.2 per unit for most of the domestic output, less than a third of the price of imported liquefied natural gas, creating a wide disparity in the market.

"Pricing freedom is a must if we have to encourage companies to invest in the gas sector so in the coming few months I will focus on trying to convince the government to move towards deregulating gas prices," commented a senior PNGRB official

"The government could introduce a sector-specific pricing model where gas producers could do a separate price-discovery for various sectors like fertiliser, power and city-gas distribution (CGD) to arrive at a proper pricing benchmark that truly reflects the appetite for gas in a particular sector," the official added.

This view, coming from a regulator, is significant as industry experts believe that companies have no incentive to invest in the sector until gas prices are deregulated. They say pricing freedom is imperative as natural gas production in the country has fallen sharply.

Output at Reliance Industries' (RIL) D6 block in the Krishna-Godavri basin, home to the country's largest gas finds, has fallen to 39 mmscmd from 60 mmscmd.

While the regulator is pushing for deregulation of gas prices, the petroleum ministry has not articulated such a view. In October, petroleum minister Jaipal Reddy told ET that "deregulation of gas pricing is a very complex issue and carries a lot of historical baggage especially as a number of empowered groups of ministers has deliberated on the subject and no definite consensus has emerged as yet. It is being discussed although I cannot give a definite timeframe to when the government will take a decision."

Currently, gas from RIL's D6 block is priced at $4.2 per million British thermal units, and other domestically produced gas is sold at a wide range of $1.8-5.7 per mBtu while imported gas in its liquid form (liquefied natural gas, or LNG) costs upward of $13-14 per mBtu.

Discussing the delay in the third round of the city-gas distribution (CGD) auctions the PNGRB official said, "The bidding process for the third round of CGD auctions has been delayed as the feasibility reports submitted by some companies seem uneconomical as some financial parameters outlined by them seem unviable. We are also waiting for our new members to join and take a combined view on the matter. We plan to announce the winning bids by Jan-Feb 2012."

In the third round for CGD auctions that concluded on February 18, 2011, bids were invited for installing and running a CGD network in Asansol-Durgapur (West Bengal), Bhavnagar, Gandhidham-Anjar, Bhuj-Mundra and Jamnagar (Gujarat), Ludhiana and Jalandhar (Punjab) and Panipat (Haryana). The round saw 51 bids from 26 companies, including IOC, Adani Energy, Gujarat State Petroleum Corp, Engineers India, GAIL Gas, British Gas and IGL.

Discussing new pipeline projects, the PNGRB official said, "We have just finalised the bids for four major trunk pipelines and companies like GSPL, IOC, HPCL, BPCL and GAIL have lined up close to Rs 15,000 crore of investments for these projects." He said that the consortium of GSPL, IOC, HPCL and BPCL have won the bids for building the pipelines from Bijaipur-Bhilwara, Mehsana-Bhatinda and Bhatinda to Srinagar.

Source: Economic Times