Natural Gas Pricing in India

By,
Mr.B.S.Negi , Ex-Member PNGRB (Infrastructure)
Dr. S.K.Pokhriyal, Associate Professor & HOD, Oil & Gas Dept., UPES
Ms. Surbhi Arora, Assistant Professor(SS) & Academic Coordinator, CCE, UPES

Natural Gas Pricing in India

Introduction
Varying & multiple gas prices
Issues influencing gas pricing
Gas Pricing How Should be Done?

Natural Gas Pricing in India

Introduction

LNG at present contributes to about 2.4% of the worlds fuel mix

Asia is the largest consumer of LNG with Japan, Kora and Taiwan and now
emerging powerhouses in China and India
The future growth in LNG consumption is expected to be driven by China,
India and niche markets in Latin America and the Middle East.
Presently, LNG supply base is limited to 17 nations with Qatar holding 33%
of the market share.
This supply base is bound to broaden as new suppliers, particularly from
East Africa and Australia would come in near future
It is expected that the global LNG market is expected to be supply
constrained only until 2017, after which supply is expected to exceed
demand

Natural Gas Pricing in India

Introduction
Share of LNG in Energy mix (2012)

Natural Gas Pricing in India

Introduction
Share of LNG in Asia Energy mix (2012)

Natural Gas Pricing in India

Introduction
India is one of the major developing countries in the world
India requires uninterrupted, economical, viable and clean fuel supplies
There is expected to be a substantial increase in demand of NG from
power, fertilizer and industrial sectors
Indias regasification capacity of 13.5 MMTPA is expected to go upto
47.5 MMTPA by 2015-16
Gas transmission pipeline of 9000 km is also expected to reach around
15000 km by 2016
The per capita energy consumption of India is almost half of the global
average i.e. 0.8 mtoe against 1.8 mtoe

Natural Gas Pricing in India

Introduction
India Energy mix

Natural Gas Pricing in India

Introduction
India LNG Consumption (2012-13)

Natural Gas Pricing in India

Introduction
India LNG Import Profile (2012-13)

Natural Gas Pricing in India

Introduction
Till December 2013, LNG re-gasification capacity in the country was
21.10 MMTPA 10 MMTPA at Dahej, 3.6 MMTPA at Hazira, 5
MMTPA at Dabhol and 2.5 MMTPA at Kochi
7.5 MMTPA of LNG is sourced through a long term contract with
RasGas, Qatar and 1.44 MMTPA is imported from Exxon Mobils
Gorgon Venture in Australia.
The remaining demand is sources from spot markets

Natural Gas Pricing in India

Gas Prices in India (2013)

Natural Gas Pricing in India

Issues influencing gas pricing
Suppressed Domestic Gas Price
Gas Transportation
Uncontrolled Fiscal Regime
Varying & multiple gas prices prevailing in India

Natural Gas Pricing in India

Issues influencing gas pricing
Allocation policies have resulted in different price sensitivity for gas
consumption for different sectors
There is limited gas-to-gas competition as LNG prices, being linked with
oil are higher than domestic APM gas, this limits its feasibility to a few
sectors that are less price sensitive or are currently not served by domestic
gas
If price is > US$ 15 MMBTU gas market is limited to plants in fertilizer,
power, steel and refineries which are switching from naptha (gas being
cheaper and more efficient)
If price is between UD$ 12 15 MMBTU gas is primarily used as a
substitute for fuel oil and replaces it in fertilizers, petrochemicals and steel
(also becomes affordable as a replacement for LNG in the CGD sector)
If price is between US$ 10 12 MMBTU - gas is affordable for refineries
replacing fuel oil, and in the CGD sector replacing diesel

Natural Gas Pricing in India

Gas Pricing How Should be Done?
User Perspective - Price should send right signal to preserve Energy and
switch to preferred source of energy
Producers perspective - Incentive to invest in the sector, general and
common principal for pricing energy from similar sources.

Remove the existing disparities - such as the Price for different energy
sources are set based on historical practice, Natural Gas pricing being less than
Import Parity Price (IPP), Pricing of tradable energy (Coal, Oil, Gas) should be at
trade parity (TPP) at the point of sale (TPP will ensure economically rational
pricing of inter fuel), perceived competition from Fertilizers and Power is
nonsexist.
Consider issues having influence on price recommendations
linking gas price to crude, domestic gas pricing linking to spot LNG to long term
LNG misleading, pricing by competition among producers and users, cost of
production from a specific field, maturity of gas market, regulatory intervention
etc.

Natural Gas Pricing in India

Gas Pricing How Should be Done?
The following is the methodology suggested for pricing of natural gas produced
domestically:
First, the netback price of all Indian imports at the wellhead of the exporting
countries will be estimated. Since there may be several sources of gas imports, the
weighted average of such netback of import prices at the wellheads would
represent the average global price for Indian LNG imports .
Secondly, weighted average of prices prevailing at trading points of transactions
i.e., the hubs or balancing points of the major global markets will be estimated.
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 wellhead price at the sources of supply for Japan will be taken as
the average price for producers at their supply points across continents.
Finally, the simple average of the prices arrived at through the aforementioned
two methods will be determined as the price for domestically produced natural
gas in India.

THANK YOU
sarora@ddn.upes.ac.in