PaRCha - JNU - AISA material - 2013 ID-35221
.
Henry Hub in the United States and the National Balancing Point in the United Kingdom and.
the price implicit in the Japan Customs-cleared prices of LNG for the trailing 12 months..
.
Adopting this formula brings, among other elements, the price of gas in Japan into the.
determination of the domestic price in India. This is problematic since prices in Japan (see.
chart) are among the highest in the world. On the other hand, the U.S. Henry Hub, identified.
as the most developed among global competitive gas pricing markets, has the lowest price..
Further, Qatar is India's principal source of LNG imports and Japan does not enter the.
picture. So the resort to the second of the pricing components in the formula brings into the.
determination of the gas price in India prices from an irrelevant and more expensive market..
In fact, the Association of Power Producers (APP) has argued that the Japanese import price.
should be removed from the domestic price computation formula as Japanese LNG-based.
prices have historically been much higher than other global market prices. The resulting.
distortion would, in its view, put an additional burden of Rs.7,000-8,000 crore on consumers..
.
The investment argument.
.
The other argument in defence of a price hike, which has been put out by Petroleum Minister.
M. Veerappa Moily, is that since India's dependence on gas will only rise over time, if prices.
are not set at "competitive levels", investment in domestic production will not occur and this.
will lead to an increased dependence on imports and a high oil import bill. Given the cost-.
effectiveness and environmental advantages associated with natural gas, the global demand.
for the fuel has indeed risen sharply in recent decades. In India, too, since the 1990s.
technologies have been used to create capacities that can substitute gas for other sources of.
energy. As a result, gas utilisation has risen faster than domestic production and availability,.
resulting in imports of LNG that is regassified in domestic facilities for local use. Imports.
began in 2003 and have risen sharply to reach 15.2 billion cubic metres (bcm) by 2011..
Production, which was at 27.9 bcm in 2000, rose to 52.2 bcm in 2010-11 and was marginally.
lower at 47.6 bcm in 2011-12..
.
However, the premise that price alone would ensure more exploration, discovery and.
production of a difficult-to-find-and-exploit resource like gas is indeed optimistic. But even if.
price must be set to encourage investment in domestic gas production, some principle of cost-.
plus pricing once discovery occurs would be better than merely using the prices prevailing in.
distorted global markets. As of now, using a version of the Rangarajan formula is only a way.
of delivering a bonanza to the current producers of gas..
.
Reliance's gain.
.
To this the Petroleum Minister's argument is: "Two-thirds of the gas produced in the country.
are by PSUs and the new pricing will apply equally to them and they stand to benefit more.
out of it." As noted earlier, given the fact that the consumers of gas are also predominantly in.
the public sector, the government (and therefore the taxpayer) is not much of a gainer, while.
RIL in the private sector is. In fact, RIL has been gaining in steps from the evolving gas.
pricing regime. In 2004, RIL won a bid to supply 12 million cubic metres a day (mcmd) of.
gas to NTPC Limited at $2.34 per mmBtu. That was the then prevailing market price. But.
thereafter the price rose significantly, permitting RIL to propose a higher price in 2007 when.
it arrived at an agreement with the government to price gas from the KG-D6 field at $4.20 per.
mmBtu. RIL had proposed a value of $4.33 per mmBtu, which was examined by a.
Committee of Secretaries. The committee more or less accepted RIL's proposal,.
..
PaRCha - JNU - AISA material - 2013 ID-35221
.
Henry Hub in the United States and the National Balancing Point in the United Kingdom and.
the price implicit in the Japan Customs-cleared prices of LNG for the trailing 12 months..
.
Adopting this formula brings, among other elements, the price of gas in Japan into the.
determination of the domestic price in India. This is problematic since prices in Japan (see.
chart) are among the highest in the world. On the other hand, the U.S. Henry Hub, identified.
as the most developed among global competitive gas pricing markets, has the lowest price..
Further, Qatar is India's principal source of LNG imports and Japan does not enter the.
picture. So the resort to the second of the pricing components in the formula brings into the.
determination of the gas price in India prices from an irrelevant and more expensive market..
In fact, the Association of Power Producers (APP) has argued that the Japanese import price.
should be removed from the domestic price computation formula as Japanese LNG-based.
prices have historically been much higher than other global market prices. The resulting.
distortion would, in its view, put an additional burden of Rs.7,000-8,000 crore on consumers..
.
The investment argument.
.
The other argument in defence of a price hike, which has been put out by Petroleum Minister.
M. Veerappa Moily, is that since India's dependence on gas will only rise over time, if prices.
are not set at "competitive levels", investment in domestic production will not occur and this.
will lead to an increased dependence on imports and a high oil import bill. Given the cost-.
effectiveness and environmental advantages associated with natural gas, the global demand.
for the fuel has indeed risen sharply in recent decades. In India, too, since the 1990s.
technologies have been used to create capacities that can substitute gas for other sources of.
energy. As a result, gas utilisation has risen faster than domestic production and availability,.
resulting in imports of LNG that is regassified in domestic facilities for local use. Imports.
began in 2003 and have risen sharply to reach 15.2 billion cubic metres (bcm) by 2011..
Production, which was at 27.9 bcm in 2000, rose to 52.2 bcm in 2010-11 and was marginally.
lower at 47.6 bcm in 2011-12..
.
However, the premise that price alone would ensure more exploration, discovery and.
production of a difficult-to-find-and-exploit resource like gas is indeed optimistic. But even if.
price must be set to encourage investment in domestic gas production, some principle of cost-.
plus pricing once discovery occurs would be better than merely using the prices prevailing in.
distorted global markets. As of now, using a version of the Rangarajan formula is only a way.
of delivering a bonanza to the current producers of gas..
.
Reliance's gain.
.
To this the Petroleum Minister's argument is: "Two-thirds of the gas produced in the country.
are by PSUs and the new pricing will apply equally to them and they stand to benefit more.
out of it." As noted earlier, given the fact that the consumers of gas are also predominantly in.
the public sector, the government (and therefore the taxpayer) is not much of a gainer, while.
RIL in the private sector is. In fact, RIL has been gaining in steps from the evolving gas.
pricing regime. In 2004, RIL won a bid to supply 12 million cubic metres a day (mcmd) of.
gas to NTPC Limited at $2.34 per mmBtu. That was the then prevailing market price. But.
thereafter the price rose significantly, permitting RIL to propose a higher price in 2007 when.
it arrived at an agreement with the government to price gas from the KG-D6 field at $4.20 per.
mmBtu. RIL had proposed a value of $4.33 per mmBtu, which was examined by a.
Committee of Secretaries. The committee more or less accepted RIL's proposal,.
..