More questions than answers in new gas price

Vol 18, PW 5 (23 Oct 14) People & Policy

When it came the reaction of most analysts to the announcement of a new $5.61/mmbtu domestic gas price for six months from November 1 was to scratch their heads in bewilderment.

Why, for example, has the Modi government chosen an obscure Canadian benchmark over Henry Hub in its new gas price formula? Or stress Russian gas consumption over the NBP (National Balancing Point) when Russia doesn’t have an internationally recognised benchmark? And what exactly is the ‘prescribed procedure’ to calculate a higher price for deep, ultra deepwater or HP/HT gas? “Rangarajan’s logic was to give upstream gas producers a price they could get outside India,” says a LNG analyst from Singapore. “But this new logic is to keep the gas price as low as possible! The Alberta price trades at a discount to Henry Hub.

By including Alberta and removing the JCC the clear signal is they want a low gas price.” In its October 18 announcement the government said it was “modifying” Rangarajan’s formula by, “Removal of the Japanese and Indian LNG import components,” as well as inclusion of the, “Alberta Gas Reference price in place of Henry Hub for Canadian consumption,” and the, “Russian actual price in place of NBP price for Russian consumption.

” Only ONGC appears happy after the statement said it will be paid the new $5.61/mmbtu price for all its gas production.

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