Oil and gas operators oppose gas price pooling

Last Updated: Thursday, February 2, 2012 - 16:29

New Delhi: An association of oil and gas operators, which boasts of members like Reliance Industries, has opposed pooling or averaging of different gas prices in the country saying it would interfere in discovery of true market price.
The Association of Oil and Gas Operators (AOGO) in its comments on the Saumitra Chaudhuri Committee report on gas price pooling said gas price pooling is not "a non-optimal solution" and is also fraught with huge collateral damage.
Demanding market pricing of domestic gas, it said "any additional domestic gas is a direct substitution of LNG import, hence, LNG import price is a natural reference point (benchmark) for market driven gas price."
"The other basis of benchmark price could be domestic crude with suitable calorific value adjustment," it said.
Market pricing of domestic gas would increase government take by way of higher royalty, taxes and share of profit petroleum, besides promoting inflow of large private investments in domestic exploration.
Also, various gas fields that are currently sub-economical or marginal, would come into production, it said adding increased domestic production would lead to lesser import of costlier LNG.
Domestic gas is currently priced at USD 4.2 to USD 5.75 per million British thermal unit (mmBtu) while the fuel imported in ships in its liquid form (liquefied natural gas or LNG) is priced at USD 10 to 14 per mmBtu.
While the Committee has not advocated pooling or averaging out of prices of domestic gas with imported LNG to have a uniform fuel price, it says pooling can be exercised in cases where it is "found to be best workable option."
The panel has instead asked for consumers being mandatory asked to buy a portion of their requirement from LNG importers, a recommendation that AOGO said was beyond the scope of the committee.
"These subjects were never analysed (during interactions with the committee). Further, allocations and price discovery are mutually exclusive in moving to a market determined system. Thus recommending one makes the other infeasible," it said.
AOGO said the committee's suggestion on "taking the Henry Hub into consideration for market-based pricing was unsuitable as the Henry Hub reflects the US market conditions, a country which is a net exporter of gas. Market Pricing benchmarks should be based on comparable alternative liquid based fuels, imported LNG and on the basis of pricing in large gas importing nations."


First Published: Thursday, February 2, 2012 - 16:29

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