Industry calls for revising gas pricing formula

Government should revise the formulae based on prices of gas importing/gas deficit countries that is sustainable in the long run

– A Didar Singh, FICCI

Industry demand doubling the price a little over $8 per unit, as recommended by Rangarajan Committee

S&P's: Revised price of domestic natural gas at $3.82 per unit for six months from October 1 will "discourage oil exploration and production companies from committing new capital expenditure"

New Delhi : Indian industry has called on the government to revise the formula for setting domestic natural gas prices to adequately remunerate exploration and production activity in the country, the Federation of Indian Chambers of Commerce and Industry (FICCI) said on Friday.

In October 2014, the government announced an upward revision of the price for gas to $5.61 per unit against the industry's demand for at least doubling it to a little over $8 per unit, as per the Rangarajan Committee recommendations.

"FICCI strongly advocates a gas pricing mechanism which adequately remunerates domestic exploration and production (E&P) activity. Not only for the development of domestic hydrocarbon industry, but is vital towards ensuring India's energy security," the industry chamber said in a statement.

"A pricing regime should be reflective of the enormous geological risks and production uncertainties which are inherent in geography such as India," it said. In a letter to Petroleum Secretary Kapil Dev Tripathi, FICCI said the gas price formula benchmarked on prices prevailing in "gas surplus/exporting geographies" like Russia Canada and the US, "will only make the Indian market less attractive in a world where other markets are more remunerative."

"Government should revise the formulae based on prices of gas importing/gas deficit countries that is sustainable in the long run," FICCI Secretary General A Didar Singh stated in the statement. Domestic gas prices are calculated by taking the weighted average prices at the Henry Hub of the US, the National Balancing Point of Britain and the rates in Alberta of Canada and Russia with a lag of one quarter.

American ratings services S&P's said earlier this month that the revised price of domestic natural gas at $3.82 per unit for six months from October 1 will "discourage oil exploration and production companies from committing new capital expenditure". The ratings agency said India should benchmark its natural gas prices to similar gas-deficient nations instead of using rates prevalent in gas-surplus areas like the US and Canada.

Another global ratings agency Moody's said: "The gas price reduction is credit negative for upstream producers ONGC and Oil India Ltd because it will lower their revenues and cash flows, which are already declining from low oil prices." "The government needs to immediately implement its decision to announce higher premium for deepwater, ultra-deep water as well as high-temperature and high-pressure fields," Didar Singh said.

In a letter to Petroleum Secretary, FICCI said the gas price formula benchmarked on prices prevailing in "gas surplus/exporting geographies" like Russia, Canada and the US, "will only make the Indian market less attractive in a world where other markets are more remunerative."