Gas price pooling is inevitable, argues report

Vol 15, PW 4 (25 Aug 11) People & Policy

Love it or hate it, gas price pooling in India is inevitable, according to a report submitted on August 18 by a government panel chaired by Planning Commission member Dr.

Saumitra Chaudhuri. “Gas price pooling will encourage efficient consumption and development of natural gas infrastructure while preserving incentives to gas suppliers,” reads the report, seen by PETROWATCH.

This ‘inter-ministerial’ panel includes state-owned companies GAIL, ONGC and Petronet-LNG, as well as government officials from the oil, fertiliser, power and finance ministries but none from the private sector. But its remit is viewed with suspicion by domestic gas producers and privately owned E&P companies.

Conspiracy theorists even suggest “a powerful LNG lobby” is behind the proposed pooling system that would average the price of expensive LNG with cheap domestic gas. Yet a cursory examination of the 67-page report reveals little cause for concern.

Broadly, the Chaudhuri panel wants price pooling carried out only for power and fertiliser companies, as these are the “most vulnerable sectors of the economy and therefore need a ‘range-bound’ gas price”. It does not recommend price pooling for any other sectors and even says power and fertiliser companies should be free to opt out of the pooling system if they want.

“There must be adequate room for an alternate (gas) market to develop for other industries and even for power and fertiliser customers who may not wish to be part of the (pricing) pool,” we learn. “This would facilitate price discovery for new gas supplies and provide comfort to new suppliers who wish to supply such industries.

” The panel’s most controversial suggestion is that GAIL should “administer the pooling system” as it has prior experience of pooling R-LNG and of operating a gas pipeline network. But it clarifies: “The pool operation must be at an ‘arm’s length’ basis with suitable functional separation within the organisation (GAIL).