According to EY, there are multiple natural gas pricing regimes in India. These can be divided into the following:
- Administered pricing mechanism (APM).
APM gas pricing
Natural gas produced from the existing fields of the nominated blocks of Indian state owned companies, OIL India Ltd. (OIL) and ONGC, caters to fertilizer and power plants, court mandated customers and those requiring less than 50 000 m3/d at APM rates.
The price of APM has been set by the Government on a cost-plus basis and is US$ 4.2/ million btu in India (US$ 2.52/million Btu in the Northeast). The price in the Northeast of the APM price elsewhere in the country (the balance 40% is paid by the Government to national oil companies (NOCs) as subsidies.
Moves towards a market based pricing regime
EY highlights that in June 2013 the Cabinet Committee on Economic Affairs (CCEA) approved a market based pricing formula for natural gas produced in India. The revised prices are based on recommendations made by the Rangarajan Committee. The pricing formula, which is valid for the next five years, pegs the price of natural gas at approximately US$ 8.4/million Btu, up from US$ 4.2/million Btu currently. The upward revision in prices is based on the weighted average of the netback at the wellhead of countries exporting LNG to India and gas prices in the trading hubs of North America, Europe and Japan. These are calculated on a trailing 12 month basis. Prices will be revised every quarter.
Non-APM gas is divided into two categories:
- Imported LNG – for which prices are determined by the market.
- Domestically produced gas from the new exploration licensing policy (NELP) and pre-NELP fields.
Pre-NELP PSC pricing
According to EY, this is applicable for gas produced from in Pann-Mukta, Tapti and Ravva fields. Gas prices are determined in the basis of the formula specified in the production sharing contract (PSC). All the gas produced is sold to GAIL, the largest state owned natural gas processing and distribution facility in India. Currently, the pre-NELP pricing is between US$ 3.5 and US$ 5.7/million Btu, EY reports.
NELP gas pricing
This applies to gas fields awarded under NELP rounds. The price of gas is determined on the basis of arm’s length prices (market prices), subject to the Government’s approval, and is controlled by PSC terms. This pricing regime was valid until March 2014. After this, a new pricing mechanism has come into force, based on the Ranagarajan Committee’s recommendations. Currently, NELP gas is priced at between US$ 4.2 and US$ 4.7/million Btu.
Price of imported LNG
The price of long term LNG imported from Qatar has been linked to Japanese custom cleared (JCC) prices and varies on a monthly basis for Petronet LNG. However, according to EY, India’s dependence on expensive spot LNG to meet the bulk of its demand sees limited growth from this source. Industry estimates suggest that the imported gas from long term LNG contracts costs approximately US$ 13/million Btu, while the spot price was at approximately US$ 18/million Btu in January 2014.
Adapted from a report by Emma McAleavey.
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