Page 15 - GLNG Week 26

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India rethinks

domestic gas

pricing mechanism

POLICY INDIA has finally bowed to pressure from its
state-run developers, announcing plans to
slowly dismantle the country’s natural gas pric-
ing mechanism. The mechanism has long been a
bugbear for domestic developers, who argue that
it leads to unrealistically low pricing for locally
produced gas.
Indian Minister for Petroleum and Natural
Gas Dharmendra Pradhan said on June 25 that
the country would begin to transition towards
market pricing. His announcement comes after
the launch of the Indian Gas Exchange (IGX) in
mid-June, which has demonstrated that the mar-
ket is willing to pay a much higher price for gas
than that set by the government.
Under the current system, the central gov-
ernment sets prices for local production every
six months using the weighted average price of
gas in hubs in the US, Canada, the UK and Rus-
sia. New Delhi slashed prices for conventional
gas production to $2.39 per mmBtu ($66.11
per 1,000 cubic metres) for the six months from
April 1.
State-run Oil and Natural Gas Corp. “We are now in a position to come to a stage
(ONGC), India’s largest gas producer, has com- where very quickly we will be coming to [the]
plained that such prices make it uneconomical nation with virtually spot pricing for a long-term
to develop a large portion of its existing reserves. deal,” Singh said on June 30.
In addition to the pricing reform, Pradhan He added that Petronet had received 13 offers
said the international energy price crash had under its tender earlier this year for 1mn tonnes
shored up the government’s commitment to per year (tpy) of LNG over 10 years. The tender
privatising Bharat Petroleum Corporation Ltd stipulated that prices would be linked to Henry
Singh noted that (BPCL). The minister noted, however, that the Hub futures and Dutch TTF futures, with the gas
timetable of the state-run refiner’s privatisation supplied on a delivered ex-ship basis.
the company had been handed to the Ministry of Finance. The executive said the company currently
India’s commitment to gas pricing reform is paid about $3.5-4.5 per mmBtu ($96.81-124.47
had begun driven by the government’s desire for the emer- per 1,000 cubic metres) for term supplies, while

renegotiating its gence of a gas-based economy coupled with an spot prices are hovering around $2 per mmBtu
($55.32 per 1,000 cubic metres).
expanding reliance on LNG imports.
New Delhi aims to raise gas’ share of the
Singh noted that the company had begun
long-term supply energy mix to 15% by 2030 from around 6.2% renegotiating its long-term supply contracts with
contracts with at present. But as consumption has grown the Qatargas, following the slump in spot prices. The
Qatargas. incentive to develop domestic fields has not, Indian government tried in January to revisit its
forcing importers to lean on international sup-
supply deal with Qatar, but Energy Minister Saad
plies to meet more than half of the country’s Sherida al-Kaabi said: “We are not renegotiating
demand. And with current prices on the inter- contracts, we stick with contracts – both sides –
national market in the doldrums, India’s buyers and we look for additional new contacts and vol-
have more room than ever to seal attractive sup- umes to comply with requirements from India.”
ply deals. Singh flagged up in early June that he was
looking to adopt a new pricing mechanism for
Talking terms long-term supply contracts. He said at the time
State-run Petronet LNG’s CEO, Prabhat Singh, that he was in talks with suppliers over new con-
said this week that the company was on the verge tracts, ones that could see the company agree
of finalising a supply deal that would peg prices to 5-10-year contracts that were priced at a dis-
close to the spot market. count to the West India Marker.™

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