ONGC commissions study to price natural gas

Vol 7, PW 25 (10 Mar 04) Midstream & Downstream

ONGC is hiring British consultancy KBC to carry out a study on how it should price its natural gas in the domestic market.

PETROWATCH learns KBCs brief is to study how gas streams are priced in other countries for international gas markets. The focus will be on countries where gas pricing is market-determined.

ONGC wants KBC to suggest, an appropriate pricing approach for natural gas in India. KBC will also offer suggestions on how to price C2 and other higher fractions when gas prices are deregulated.

The KBC study and recommendations will cover, specific situations in which ONGC sells its gas and the assessment of shipping costs where import parity pricing is the norm. In India, ONGC sells its entire gas production to GAIL.

This gas is of varying composition and is sold to GAIL at a price linked to the international fuel oil basket, based on thermal equivalence. Eventually, ONGC wants to follow international practice of extracting C2 and other higher fractions for value addition and sell only 100% methane.

Once the Indian gas market is deregulated, we expect this to happen here as well and we want to be prepared. ONGCs primary aim in hiring KBC is to, assess the potential of our natural gas for the purposes of value addition by means of a premium on the higher fractions.

This will help maximise our revenue when the gas market is decontrolled. ONGC began preparing itself for a deregulated gas market in November 2002 when it submitted a draft gas sales agreement - drawn up with Ernst & Young - to GAIL incorporating the best international practices.

GAIL has yet to sign the GSA and theres no indication when it will. Our model gas sales agreement, says ONGC, places a premium on rich gas supplied for use as feedstock.