Oil and gas exploration companies submitted their views on the recommendations of the C Rangarajan committee on natural gas pricing to union petroleum ministry.
The companies argue that linking the price of domestic natural gas to that prevalent in gas-surplus economies is defective.
The committee suggested a pricing formula based on the average of two prices – the price at other producing destinations and the volume-weighted price of US’s Henry Hub, UK’s NBP and Japan Custom Cleared (on net-back basis, since it is an importer). Both Henry Hub and NBP or National Balancing Point are traded prices.
The companies – which include Reliance Industries, ONGC, and Cairn India – submitted their views under the aegis of AOGO (Association of Oil & Gas Operators). They argue that the markets or hubs used in price calculations must be where demand far exceeds local supply, as is the case in India.
The producers say that in a consuming economy, where gas is in short supply, the prices are higher than in a producing economy and, therefore, the “congruence with production incentive economies such as the US or Europe is ‘defective’.
The ministry is evaluating the submissions of the producers before firming up its views. In their submission to Petroleum & Natural Gas Minister Veerappa Moily these companies have said that the index must be based on transparently available information, which is easy to compute and avoids disputes between buyers and sellers.
The producers further say that any index-based formula must have a variable biddable part, which creates a competitive price discovery through a transparent bidding process, as mandated under the production sharing contract (PSC). There cannot be a fixed prioritisation/allocation to make bidding an infructuous exercise, they say.
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