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APR 02 2013

Gas price should be remunerative to producer, affordable to consumer

  • Economic Times, ET Bureau / Hyderabad
  • Created: Tue 02nd APR 2013

An ideal gas pricing mechanism would be one that is linked to actual contracts executed for India and are running, says A.K. Balyan, Managing Director and CEO, Petronet LNG Ltd.

At present, 7.5 million tonnes a year is being sourced through a long-term contract with RasGas, Qatar, by Petronet with back-to-back sales arrangement with GAIL, Indian Oil Corporation and Bharat Petroleum Corporation.

Though officially these companies do not disclose the formula adopted, the contract is priced with an oil-indexed formula (linked to Brent). The landed cost of Qatar gas is about $11/mmBtu, and this after adding transportation cost, marketing margins, taxes and local levies is available to consumer at about $12/mmBtu.

Besides the Qatar gas, Petronet has tied up 1.44 mtpa LNG from Exxon Mobils Gorgon Venture in Australia, which will come in 2016. In addition, there are two contracts which GAIL (India) has signed.

On suggestions made by the Rangarajan panel on gas pricing, Balyan says that formula can always be debatable. What is to be remembered is that each field will have different production costs, and if the gas is sour, it will have to be processed, which will add to the cost, he adds. "The price should be such that it is remunerative (to the producer) and attracts investments as well as affordable by the consumer, he told Business Line.


With the output from the largest fields on the decline, and no big productions going on stream, Indias dependence on imported gas is inevitable. The growing demand can also be assessed from the fact that Petronet, on February 25, received its 1,000{+t}{+h} LNG cargo at its Dahej LNG Terminal. This feat was achieved by the company in a span of nine years and 26 days, which is a first for any LNG terminal in the world with a single jetty operation.

Currently, the domestic demand for gas is limited by its availability. The projected natural gas production in 2012-13 is about 117.8 mmscmd, which is about 9 per cent lower than the previous year, according to Petroleum and Natural Gas Ministry data. The demand for natural gas has been increasing exponentially and is estimated to cross 400 mmscmd by the end of the 12th Plan.

By 2025-30, domestic production will be 230 mscmd and demand over 700 mmscmd. This is based on certain assessments, leads, production, and successes, says Balyan, adding that this only confirms the earlier trend or belief that India will have to import more gas.

More gas can be brought only in two ways, through trans-national pipelines that are tough projects, with their own complexities, technical as well as political or through imports (LNG).

Balyan feels imports are more doable. From 2017-18, more gas will be available globally, as bigger projects are coming up. For instance, Mozambique, US exports may start in 2018-19, Russian LNG and Australian projects will come up, and even Iran will come up. A huge project in offshore Israel is also being spoken about, he adds.

"What will be seen is that at that point of time, the situation will be different. With more LNG available, there will be a new pricing regime, he adds.


Gas Natural Gas Oil Mozambique Petrol United States Russia Petroleum 12th Plan Liquefied natural gas Petronet LNG Ltd Iran India Australia

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