Enincon to release its industry first price factor report “Gas price benchmarking in India” in September 2013

Gas Price Benchmarking in India

Recently, Government of India has decided to adopt Rangarajan Committee report on gas pricing in toto where in gas prices will be decided basis average of international hub prices and imported LNG prices to India. It is predicted that the gas prices will be almost double at USD 8.4 per MMBTU which will be applicable in April 2014. The current hike; however will be applicable to all sources of gas. Will it be a right step forward or not? Only time will judge. This price would be applicable to gas producers but there is no clear indication on how to treat gas consumers who are price averse always.

NTPC has recently said that it is not finding any takers for its gas based power generation. It argues that  at the current prices of USD 4.2 per mmbtu, discoms shy away from purchasing power from gas based generation. There is apprehension that they will never purchase power at a higher price of gas at around USD 8.4 per mmbtu at a time when they are struggling with huge debt burden .More ever, the gas price is in dollars and not in rupee terms which will also be a negative factor for India as valuation of rupee is constantly going down against USD.

The argument in favour of price hike is that it will increase investment in Exploration and Production and thus India will be in a better position to tap the gas potential, thus reducing dependence on gas import. But on the other hand, the price hike in natural gas combined with constantly decline in gas production would force the non core industries to go for expensive LNG import. The price hike does not augur well for the power and fertiliser sector.

As the debate hots up for gas price hike, there is a need felt for standardisation and benchmarking of gas price in India, not only taking the international factors of LNG import but also factoring additional sources of gas like CBM, Shale production in India. The sourcing and development of these futuristic options would decide the future course of gas pricing in India. The benchmark pricing should be futuristic and take all critical parameters like geological constraints, production factors and other issues relevant for India only.

ENINCON  with its price factor benchmarking report Gas Price Benchmarking in India would evaluate  all options available  considering the Indian factors  and dig deep into the LNG,CBM and shale gas  options available to come up with price benchmarks for Indian Scenario.
For more details about the report, please visit www.enincon.com or write to connect@enincon.com

*The views expressed in this article are solely those of enincon perspectives and do not necessarily represent those of Enincon LLP.

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