Indian govt to review gas pricing formula
June 12, 2014, 11:41 am

File photo of Chairman and Managing Director of Reliance Industries Limited Mukesh Ambani, center left, speaking with Indian Prime Minister Narendra Modi in Gandhinagar, in the western Indian state of Gujarat, Saturday, Oct. 19, 2013 [AP]

Investment in India’s domestic exploration and production has been deterred by the previous government keeping prices below global market levels.

The previous Congress government had last year approved pricing of all forms of domestically produced gas at according to a formula suggested by a panel headed by C Rangarajan.

“Rangarajan formula is too complex. It has variables that were questioned by stakeholders during the entire approval process in the previous government. This formula either needs to be simplified or replaced by a less complex one,” an Indian official was quoted by the India’s state-run news agency PTI.

Opposition politicians including leader of anti-graft party Arvind Kejriwal and Gurudas Dasgupta, leader of the Communist Party of India and many civil rights groups say that the new prices are intended to unduly benefit top gas producers Reliance, owned by India’s richest man, Mukesh Ambani.

The announcement of a new price may now be delayed beyond July 1, the date the Oil Ministry has given to Reliance Industries for implementation of new rate.

The Rangarajan pricing formula is based on the average of the prices of imported LNG into India and the weighted average of gas prices in North America, Europe and Japan in 12 months.

The price of gas, according to this formula, comes to around $8.3 per million British thermal unit for April-June quarter, almost double the current price of $4.2.

However, if only LNG bought on long-term contract is kept and the purchases from volatile spot market are eliminated, as was demanded by some user ministries in the run up to the Cabinet approval, the new rate would come to $7.8, the official said.

While $8.3 is the estimate of gas price for April-June quarter based on averages in the January-December period, the price in subsequent quarters would be higher considering India’s long-term LNG import contract has seen an increase from 2014.

Gas price could rise to $9.1 per mmBtu next fiscal and to $9.6 by FY’17 assuming current pricing levels of crude, US Henry Hub, UK National Balancing Point and Japan LNG imports, he said.

Source: Agencies