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CCEA approves fixation of price for domestic natural gas

Fixation of price of domestic natural gas according to Rangarajan Committee recommendations on Production Sharing Contract (PSC) mechanism in petroleum industry

The Cabinet Committee on Economic Affairs (CCEA) today gave its approval for fixation of price of domestic natural gas according to the recommendations of the committee constituted under the Chairmanship of Dr. C. Rangarajan on Production Sharing Contract (PSC) mechanism in the petroleum industry. The present gas pricing policy under the New Exploration Licensing Policy (NELP) had been approved by the Government for five years beginning April, 2009. This pricing policy will be due for revision with effect from April, 2014.

The CCEA has approved the Rangarajan Committee Report recommendations. The approved recommendations known as the Natural Gas Pricing Guidelines, 2013 will remain valid for five years. On the one hand these guidelines will help incentivize investment in the Indian upstream sector, so that production reaches optimum levels and all exploitable reserves are put to production expeditiously. At the same time these guidelines will ensure that producers do not cartelize because of the huge unmet demand. This will protect consumer interests.

The approved policy derives from global trade transactions of gas, the competitive price of gas at the global level by combining two methods. First, the netback price of Indian LNG term imports (excluding spot imports) at the wellhead of the exporting countries will be estimated. Such a netback weighted average price will be interpreted as the arm™s length competitive price applicable for India. The second method of searching for a competitive price for India will be to take the weighted average of pricing prevailing at trading points of transactions therefore, the hubs or balancing points of the major markets of continents. For this, (a) the hub price at the Henry Hub in the US (for North America), (b) the price at the National Balancing Point of the UK (for Europe), and (c) the netback price at the sources of supply for Japan will be taken. Finally, the simple average of the prices arrived at through the aforementioned two methods will be taken. Such an overall average of global prices, derived on the basis of netback and hub/balancing point principles, will be taken as the economically appropriate estimate of the arm™s length competitive prices applicable for India.

These guidelines will be applicable from April, 2014 to all domestically produced gas. However, the guidelines will not be applicable in respect of gas for which prices have been fixed contractually for a certain period of time, till the end of such period. These guidelines will also not be applicable where the contract provides a specific formula for natural gas price indexation/fixation.

Tags: C. RangarajanCabinet Committee on Economic AffairsCCEAHenry HubIndiaNatural gasNatural gas pricesNew Exploration Licensing Policy

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