Reversing its earlier stand, a high-level government committee said
that domestic natural gas users cannot be asked to subsidise costlier
imported LNG as pooling of natural gas prices was not feasible.
An inter-ministerial panel headed by Planning Commission Member Saumitra Chaudhuri in its draft report a few months back had suggested averaging out price of costlier imported LNG with cheaper domestic gas. The averaging out, called pooling of prices, would have resulted in users of cheaper domestic natural gas pay double the existing rates so that imported LNG could be sold at affordable rates.
But in its final report, which was prepared after extensive consultation with the industry, it said, "The Committee does not recommend pooling mechanism for natural gas at the overall level, nor does it recommend a price pooling on sectoral basis."
Instead, the committee in its August 25 report said preferential allotment of domestic gas to be done to priority sectors of fertiliser and power only and the rest of the consumers like steel plants should be allocated imported LNG.
Domestic gas is currently priced at USD 4.2 to USD 5.5 per million British thermal unit (mmBtu) while the fuel imported in ships in its liquid form (liquefied natural gas or LNG) is priced at USD 10 to 14 per mmBtu.
"These (non-priority) users operate in a market environment where their output prices are market driven with no regulatory burden and hence they should be able to pass on the higher costs of gas feedstock," the report said.
State gas utility GAIL India and Petronet LNG, which were part of the inter-ministerial committee, had been lobbying for pooling of gas prices as LNG currently being imported on a long-term contract from Qatar will cost upward of USD 12 per mmBtu from 2014 while new contract with Australia was priced
at USD 14.5 per mmBtu.
"The recommendation put forth here do not envisage any form of pooling at the all-India level cutting across industries," the report said.
"What it does is to preferentially allot available domestic natural gas to fertiliser and power sectors with a certain quantity reserved allotment for the city gas/CNG sector," it said.
The final report called for meeting incremental requirements of the two sectors and keeping usage of imported LNG in the priority sectors to not more than 25%.
Non-priority steel plants, oil refineries, petrochemical units presently consume about 18.4 million standard cubic meters per day out of the total domestic gas availability of 110.59 mmscmd. Fertiliser and power sector draw 88.37 mmscmd.
The Committee said the domestic gas producers should be given freedom to discover the price of the fuel. "The process should reflect opportunity costs, adequacy of incentives for exploration and production (E&P) and fairness of the consumer."
It also wanted import duty on LNG to be aligned with that of crude oil, on which the customs duty was brought down to zero from 5% in June this year. Also, the government should treat LNG/Natural Gas as a "declared good" so that they have a common concessional rate of VAT.
"The Department of Revenue (which was also part of the committee) is not agreed to the proposal for aligning import duty on LNG with that of crude. On the issue of declared good status in regard of VAT, the Department of Revenue did not wish to record a view," the report noted.
The Committee said it has opted for preferential allotment on a scheme of priority as a basis for allocating the scarce resources of domestically produced natural gas.
"Fertiliser and power sectors have been given first priority for domestic gas. But it is recognised that even they will have to consume some amount of LNG," it said.
For city gas distribution and CNG retailing to automobiles, the Committee recommended that a certain amount of domestic gas (6-7 mmscmd) be set aside for their usage.
Even for non-priority users, the panel said they should have "a choice of either sourcing their own supply of LNG or depending on their present suppliers to give them gas at blended domestic and LNG price."
"Large users may opt to choose to source their own LNG and this will help develop a competitive market for LNG," it said.
Projecting gas demand to rise to 199 mmscmd by 2016-17 from current 132.5 mmscmd, it said the fertiliser sector would need to source 22% of their requirement from LNG while the power sector will need to source 27% of their needs.
"All other users, including city gas/CNG and non-priority industries, would have to source the bulk of their requirement from LNG," the report said. "In 2011-12, about 73% of their total requirement would have to come from LNG and this proportion is likely to rise to little over 80% by
2016-17 depending on the growth of demand from the sectors."
Total LNG imports are likely to rise from about 46 mmscmd presently to about 103 mmscmd by 2016-17.
An inter-ministerial panel headed by Planning Commission Member Saumitra Chaudhuri in its draft report a few months back had suggested averaging out price of costlier imported LNG with cheaper domestic gas. The averaging out, called pooling of prices, would have resulted in users of cheaper domestic natural gas pay double the existing rates so that imported LNG could be sold at affordable rates.
But in its final report, which was prepared after extensive consultation with the industry, it said, "The Committee does not recommend pooling mechanism for natural gas at the overall level, nor does it recommend a price pooling on sectoral basis."
Instead, the committee in its August 25 report said preferential allotment of domestic gas to be done to priority sectors of fertiliser and power only and the rest of the consumers like steel plants should be allocated imported LNG.
Domestic gas is currently priced at USD 4.2 to USD 5.5 per million British thermal unit (mmBtu) while the fuel imported in ships in its liquid form (liquefied natural gas or LNG) is priced at USD 10 to 14 per mmBtu.
"These (non-priority) users operate in a market environment where their output prices are market driven with no regulatory burden and hence they should be able to pass on the higher costs of gas feedstock," the report said.
State gas utility GAIL India and Petronet LNG, which were part of the inter-ministerial committee, had been lobbying for pooling of gas prices as LNG currently being imported on a long-term contract from Qatar will cost upward of USD 12 per mmBtu from 2014 while new contract with Australia was priced
at USD 14.5 per mmBtu.
"The recommendation put forth here do not envisage any form of pooling at the all-India level cutting across industries," the report said.
"What it does is to preferentially allot available domestic natural gas to fertiliser and power sectors with a certain quantity reserved allotment for the city gas/CNG sector," it said.
The final report called for meeting incremental requirements of the two sectors and keeping usage of imported LNG in the priority sectors to not more than 25%.
Non-priority steel plants, oil refineries, petrochemical units presently consume about 18.4 million standard cubic meters per day out of the total domestic gas availability of 110.59 mmscmd. Fertiliser and power sector draw 88.37 mmscmd.
The Committee said the domestic gas producers should be given freedom to discover the price of the fuel. "The process should reflect opportunity costs, adequacy of incentives for exploration and production (E&P) and fairness of the consumer."
It also wanted import duty on LNG to be aligned with that of crude oil, on which the customs duty was brought down to zero from 5% in June this year. Also, the government should treat LNG/Natural Gas as a "declared good" so that they have a common concessional rate of VAT.
"The Department of Revenue (which was also part of the committee) is not agreed to the proposal for aligning import duty on LNG with that of crude. On the issue of declared good status in regard of VAT, the Department of Revenue did not wish to record a view," the report noted.
The Committee said it has opted for preferential allotment on a scheme of priority as a basis for allocating the scarce resources of domestically produced natural gas.
"Fertiliser and power sectors have been given first priority for domestic gas. But it is recognised that even they will have to consume some amount of LNG," it said.
For city gas distribution and CNG retailing to automobiles, the Committee recommended that a certain amount of domestic gas (6-7 mmscmd) be set aside for their usage.
Even for non-priority users, the panel said they should have "a choice of either sourcing their own supply of LNG or depending on their present suppliers to give them gas at blended domestic and LNG price."
"Large users may opt to choose to source their own LNG and this will help develop a competitive market for LNG," it said.
Projecting gas demand to rise to 199 mmscmd by 2016-17 from current 132.5 mmscmd, it said the fertiliser sector would need to source 22% of their requirement from LNG while the power sector will need to source 27% of their needs.
"All other users, including city gas/CNG and non-priority industries, would have to source the bulk of their requirement from LNG," the report said. "In 2011-12, about 73% of their total requirement would have to come from LNG and this proportion is likely to rise to little over 80% by
2016-17 depending on the growth of demand from the sectors."
Total LNG imports are likely to rise from about 46 mmscmd presently to about 103 mmscmd by 2016-17.
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