The pricing of natural gas is set for a major revamp. An empowered group of ministers is likely to approve new policy guidelines based on the Rangarajan committee report; this would more-than-double the price of domestic gas sold by Oil and Natural Gas Corporation and Oil India.
If the price rise is approved, it would raise costs for power and fertiliser companies and other natural gas buyers such as city gas distributors.
Though existing contracts for domestic contracts would remain unaffected till the expiry of the contract period, the new policy would usher in uniformity in pricing.
The new policy would be applicable to coal bed methane, as well as all other non-conventional gas, including shale.
Contracts that provide for indexation of natural gas to a formula would be untouched for now. The Ministry of Petroleum and Natural Gas has recommended the Rangarajan formula for all natural gas producers, including government companies, for nominated fields and private companies. The price would be uniformly applicable to all consumers. Currently, gas produced from nominated fields are sold at $2.52 a million British thermal units (mBtu) to certain consumers.
The Rangarajan formula is the mean of weighted averages of the producer price of liquefied natural gas imports to India and the price prevalent in Europe, the US and Japan. At current rates, the price was about $7.4, said an official. Though domestic gas prices had been aligned to $4.2 fixed for Reliance Industries Limited (RIL)’ KG-D6 gas in 2007, this time, RIL would have to wait till 2014, when its gas price is due for revision.
The Rangarajan committee, which recently submitted its report, had suggested the rates might not apply to the BG Group-operated Panna/Mukta and Tapti fields, as the current rates of $5.57-5.73 per mBtu were derived from a formula in the production-sharing contract. However, Cairn India’s Ravva gas, currently priced at $3.5-4.3 per mBtu, would be revised.
In 2011-12, domestic gas output stood at 154 million standard cubic metres a day (mscmd). This year, it is expected to fall, with RIL producing less than 25 mscmd.