Recently, the Cabinet Committee on Economic Affairs (CCEA) cleared the fixation of price of domestic natural gas according to the recommendations of the committee constituted under the Chairmanship of C Rangarajan on Production Sharing Contract (PSC) mechanism in the petroleum industry.
The approved policy derives from global trade transactions of gas, the competitive price of gas at the global level by combining two methods.
First, the netback price of Indian LNG term imports (excluding spot imports) at the wellhead of the exporting countries will be estimated. Such a netback weighted average price will be interpreted as the armÂ’s length competitive price applicable for India.
The second method of searching for a competitive price for India will be to take the weighted average of pricing prevailing at trading points of transactions – therefore, the hubs or balancing points of the major markets of continents. For this, (a) the hub price at the Henry Hub in the US (for North America), (b) the price at the National Balancing Point of the UK (for Europe), and (c) the netback price at the sources of supply for Japan will be taken.
Finally, the simple average of the prices arrived at through the aforementioned two methods will be taken. Such an overall average of global prices, derived on the basis of netback and hub/balancing point principles, will be taken as the economically appropriate estimate of the armÂ’s length competitive prices applicable for India.
These guidelines will be applicable from April, 2014 to all domestically produced gas. However, the guidelines will not be applicable in respect of gas for which prices have been fixed contractually for a certain period of time, till the end of such period. These guidelines will also not be applicable where the contract provides a specific formula for natural gas price indexation or fixation.
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