GAIL study to suggest uniform gas pricing models

Amidst call for an uniform pricing of natural gas prevalent in the country, GAIL India has begun hiring consultants for conducting a study on the topic. The fertiliser sector, which will move to a new nutrient-based subsidy system, has asked for uniform pricing of natural gas.

Under the new system, subsidy will be fixed and given to farmers instead of manufacturers. The Department of Fertilisers, in fact, is mulling a proposal to pool the gas prices for fertiliser users in case the Ministry of Petroleum and Natural Gas is unable to come out with a uniform price. BS Reporter

On Monday, GAIL conduced a pre-bid meeting with the likely bidders for the study. Officials said the scope of study would include working out a natural gas balance statement for the next five years, based on the demand and supply projection for natural gas. With Reliance Industries Ltd (RIL) starting production from its D6 field in the Krishna-Godavari basin, the share of gas production from privately-operated fields has increased to around 60 per cent from about 50 per cent, giving rise to a situation where the regulated price of $1.8 per million British thermal unit (mBtu) of gas produced by state-run ONGC and Oil India no more dominates the market.

The study would also suggest viable models for stable and uniform gas pricing based on pricing information for gas from various sources. It will also outline the advantage and disadvantages of various models along with price simulators at different price levels of benchmark fuels.

Besides sectoral impact, regulatory issues, impact on existing contracts and means to resolve them, impact of the government subsidies, implementation methodology and periodicity of review would also be studied. Officials said the study was likely to be awarded later this month.

The current gas prices in the country range from $1.8 to over $6 per mBtu, which means cost of production for gas consumers varies according to the source of gas.

In the case of fertiliser, the cost of production was so far not an issue for the manufacturers, since it was being subsidised by the government. But under the new subsidy system, fertiliser units with higher costs would become unviable.