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'Natural gas prices should be determined by market forces'

Besides approving price, the government also fixes gas users and allocates quantities, creating hurdles to gas market development

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As Oil Ministry resists ' demand for higher gas price, India's document prescribes being determined by market forces.

India currently has 15 different rates ranging from $2.52 per million British thermal unit to $6.77 per mmBtu for natural gas produced from domestic fields. The highest rate is roughly half the rate at which the nation imports gas in ships in its liquid form (liquefied natural gas).

"Natural gas prices must be determined by market forces," the 12th Five Year (2012-17) Plan document states.

Besides approving price, the government also fixes gas users and allocates quantities, creating hurdles to gas market development.

Reliance Industries, which sells natural gas produced from its eastern offshore KG-D6 fields at $4.205 per mmBtu, is seeking rates equivalent to price India pays for importing LNG.

The company wants to price KG-D6 gas at 12.67 per cent of JCC, or Japan Customs-Cleared Crude, plus $0.26 per mmBtu from April 1, 2014 when the current approval for current rates expire. At $100 per barrel oil price, gas will cost $12.93 per mmBtu.

It also wants to price the gas it plans to produce from coal seams, called coal-bed methane (CBM), from its contract area in Madhya Pradesh according to the same formula, but the Oil Ministry has not approved it despite the company sending almost one-and-a-half dozen reminders.

"There is need for clarity on fiscal incentives on exploration of natural gas under New Exploration Licensing Policy (NELP)," the Plan document said.

RIL won the KG-D6 block and Sohagpur CBM area under separate NELP rounds.

"Eliminate the uncertainty that has arisen regarding gas pricing for NELP production sharing contracts by implementing a new design of contracts based on the recommendation of the Rangarajan Committee," the Plan document said listing reforms required in the oil and gas sector.

"Appropriate steps should be taken to resolve conflicts in existing contracts where the interpretation of the contract term is open to multiple options," it added.

Besides, it called for incentivising exploration and production of domestic non-conventional fuels like shale gas and CBM.

Also, it wanted natural gas/LNG to be given the 'Declared Goods Status' so that a uniform central sales tax can be levied on the environment friendly fuel rather than present practice of varying state VAT.

This would lead to uniform price of gas in most of the states, it said.

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