Domestic natural gas may cost more

The inter-ministerial committee,headed by Planning Commission Advisor (Energy) Sunanda Sharma,today held it first meeting on subsidising costlier imported LNG by making consumers of cheaper domestic natural gas pay more.

“The meet discussed the need for such a move and all except the representative of power ministry agreed on the need,” a source privy to the deliberations said.

The Power Ministry wanted more discussion on the rationale to average out or pool price of costlier imported LNG with cheaper domestic gas,the source said.

More deliberations will follow and various sub-groups on working out modalities,tax implications,etc,will be formed.

The panel was constituted after Petronet LNG,India’s largest liquefied natural gas importer,contracted LNG from Australia at a price that is four times the rate at which most of the natural gas produced from domestic field is sold.

Australian LNG,which is to be imported at Petronet’s under construction Kochi terminal in Kerala from 2014,is indexed at 14.5 per cent of crude oil price — the loading price at Australian port will be USD 14.5 per million British

thermal unit at USD 100 a barrel oil price.

After adding USD 1-1.2 per mmBtu towards cost of shipping,the gas in its liquid form in cryogenic ships to Kochi,5 per cent customs duty (USD 0.77 per mmBtu) and cost of converting the LNG into its gaseous state,the gas ex-Kochi will cost about USD 17 per mmBtu.

This compares to USD 4.2 per mmBtu price of majority of gas,the source said,adding the panel will suggest how these two prices can be pooled or averaged out to make the gas affordable to power and fetiliser units in Kerala.

However,the constitution of the committee has come in for questioning by some quarters,who say inclusion of officials of Petronet,a private company,and state-owned gas utility GAIL are a conflict of interest.

Petronet and GAIL,which is a promoter of Petronet and principal marketer of the Australian LNG,are naturally inclined towards price pooling.

Instead,upstream regulator DGH,they say,should have been co-opted as member of the committee so as to detail the implication and complication of such proposal on contracts of the fields awarded under New Exploration Licensing Policy.

The inter-ministerial panel includes representatives of power,fertiliser,finance and oil ministries,GAIL India Chairman,Petronet CEO,Petroleum and Natural Gas Regulatory Board Secretary and Oil and Natural Gas Corp (ONGC) Director Finance.

Previously,GAIL had commissioned a study by Spanish consultant Mercados on the feasibility of pooling of over a dozen different rates at which natural gas produced from different fields in the country is sold.

The price for domestic natural gas ranges from USD 2.71 to USD 5.73 per mmBtu,LNG imported from Qatar on long-term contract is currently imported at USD 6.92 per mmBtu and from spot market at USD 8.50-9.50 per mmBtu.

Sources said the terms of reference (ToR) of the committee have been tweaked to omit the previously indicated objective of rationale for pooling of gas.

The ToR in the present form pre-suppose that the decision of a pooled price has already been taken and that the committee was only to devise pool operating guidelines,without even evaluating the various options.

Mercados had suggested separate pools for fertiliser and power sector and involved several complex inter-ministerial issues.

The Inter-Ministerial Committee will formulate a policy for pooling of natural gas prices and devise pool operating guidelines to make the policy operational.

Petronet LNG Ltd,India’s largest importer of liquefied natural gas,has contracted 1.5 million tonnes a year of LNG from Australia for delivery at its under-construction Kochi terminal in Kerala from 2014-end.

The natural gas produced by state-owned ONGC and Reliance Industries,which together account for over 80 per cent of gas in the country,is priced at USD 4.2 per mmBtu.