A SIGNIFICANT PRICE ADVANTAGE FOR DOMESTIC GAS

Vol 3, PW 16 (01 Sep 99) Midstream & Downstream
     

Why then, is domestic gas a more attractive proposition than imported LNG In a word: price.

Figures provided to Petrowatch suggest that the landed cost of imported LNG into India will cost anywhere between $3.50-$4.50 per British Thermal Unit (BTU). Contrast that with a well-head price of between $1.50-2.00 per BTU for domestic gas and it quickly becomes clear that LNG importers face a significant price disadvantage if domestic gas production in India increases to the figures projected.

The winner is clearly Gas Authority of India (GAIL), the principal buyer of Indian domestic gas, which has first right of refusal to buy all domestically produced gas in India. GAILs pricing structure is a closely held secret.

Suffice it to say the company pays less to ONGC for its gas than it does to foreign companies. Cairn Energy, for example, charges a well-head price of $1.70 per BTU for gas supplied from its Ravva oil and gasfield, while Enron maintains a floor price of $2.30 for gas provided from its Bombay Offshore fields.

Central government policy is also weighed heavily in favour of domestic gas production over imports of LNG, a fact likely to be exploited in the years ahead by the major gas producers in India: ONGC, Enron, Cairn Energy and Niko Resources of Canada (which operates the Hazira gasfield in Gujarat). Private producers are permitted to sell gas from any new discovery in India direct to the end user, bypassing GAIL.

Cairn, for example, is at an advanced stage of talks with GAIL to see if the latter wants to increase the amount of gas purchased from Ravva. Cairn expects to double existing production from Ravva to 2m cm/d and is already chasing potential buyers if GAIL refuses to offtake additional production.

ONGC already sells direct to small-scale users in southern India.