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India rethinks domestic gas

pricing mechanism

POLICY INDIA has finally bowed to pressure from its forcing importers to lean on international sup-
state-run developers, announcing plans to plies to meet more than half of the country’s
slowly dismantle the country’s natural gas pric- demand. And with current prices on the inter-
ing mechanism. The mechanism has long been a national market in the doldrums, India’s buyers
bugbear for domestic developers, who argue that have more room than ever to seal attractive sup-
it leads to unrealistically low pricing for locally ply deals.
produced gas.
Indian Minister for Petroleum and Natural Talking terms
Gas Dharmendra Pradhan said on June 25 that State-run Petronet LNG’s CEO, Prabhat Singh,
the country would begin to transition towards said this week that the company was on the verge
market pricing. His announcement comes after of finalising a supply deal that would peg prices
the launch of the Indian Gas Exchange (IGX) in close to the spot market.
mid-June, which has demonstrated that the mar- “We are now in a position to come to a stage
ket is willing to pay a much higher price for gas where very quickly we will be coming to [the]
than that set by the government. nation with virtually spot pricing for a long-term
Under the current system, the central gov- deal,” Singh said on June 30.
ernment sets prices for local production every He added that Petronet had received 13 offers
six months using the weighted average price of under its tender earlier this year for 1mn tonnes
gas in hubs in the US, Canada, the UK and Rus- per year (tpy) of LNG over 10 years. The tender
sia. New Delhi slashed prices for conventional stipulated that prices would be linked to Henry
gas production to $2.39 per mmBtu ($66.11 Hub futures and Dutch TTF futures, with the gas
per 1,000 cubic metres) for the six months from supplied on a delivered ex-ship basis.
April 1. The executive said the company currently
State-run Oil and Natural Gas Corp. paid about $3.5-4.5 per mmBtu ($96.81-124.47
(ONGC), India’s largest gas producer, has com- per 1,000 cubic metres) for term supplies, while
plained that such prices make it uneconomical spot prices are hovering around $2 per mmBtu
to develop a large portion of its existing reserves. ($55.32 per 1,000 cubic metres).
In addition to the pricing reform, Pradhan Singh noted that the company had begun
said the international energy price crash had renegotiating its long-term supply contracts with
shored up the government’s commitment to Qatargas, following the slump in spot prices. The
privatising Bharat Petroleum Corporation Ltd Indian government tried in January to revisit its
(BPCL). The minister noted, however, that the supply deal with Qatar, but Energy Minister Saad
timetable of the state-run refiner’s privatisation Sherida al-Kaabi said: “We are not renegotiating
had been handed to the Ministry of Finance. contracts, we stick with contracts – both sides –
India’s commitment to gas pricing reform is and we look for additional new contacts and vol-
driven by the government’s desire for the emer- umes to comply with requirements from India.”
gence of a gas-based economy coupled with Singh flagged up in early June that he was
an expanding reliance on liquefied natural gas looking to adopt a new pricing mechanism for
(LNG) imports. long-term supply contracts. He said at the time
New Delhi aims to raise gas’ share of the that he was in talks with suppliers over new con-
energy mix to 15% by 2030 from around 6.2% tracts, ones that could see the company agree
at present. But as consumption has grown the to 5-10-year contracts that were priced at a dis-
incentive to develop domestic fields has not, count to the West India Marker.™

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