No more subsidised APM gas for new CGD networks

Vol 10, PW 12 (05 Oct 06) Midstream & Downstream

India's oil ministry has firmly ruled out the allocation of subsidised APM (Administered Pricing Mechanism) gas for new CGD (City Gas Distribution) networks planned by state-owned companies.

Contacted by PETROWATCH, a senior oil ministry official confirms: GAIL wrote to us some months back asking for more allocation of APM gas for its CGD projects. We wrote back to them and told them it would not be possible.

Instead, believes the oil ministry, state-owned oil and gas companies should buy gas at market-determined prices for their upcoming CGD networks, be it home-produced private sector gas or regassified LNG. No exceptions will be made: upcoming or planned CGD networks must all source gas from the market.

Last year the Gas Linkage Committee which made these allocations was abolished, adds our ministry source. Future production of domestic APM gas will also decline so such allocations will inevitably be further cut.

One company at the sharp end of the new directive is Green Gas, a GAIL joint venture with Indian Oil, set up in 2005 to introduce CGD networks to Agra, Lucknow, Kanpur and Bareilly in Uttar Pradesh, Indias most populous state. Spot LNG costs around $11-$12 and R-LNG bought by us will translate into a CNG pump price of more than Rs40/kg, complains a Green Gas source.

This is not feasible. Today, we are selling CNG at Rs28/kg.

Green Gas admits that CNG at Rs28/kg is possible only because it is sourcing cheap R-LNG from Petronet-LNGs original $2.53 per mmbtu contract with RasGas signed in July 1999. But this R-LNG is already contracted by Petronet-LNGs offtakers (GAIL, IOC and BPCL), adds Green Gas.

Where will the new supplies come from and at what price Green Gas already operates one mother CNG station in Agra with a capacity of 12,000 kg/day and expects to commission two daughter stations by next month. But its target to set up a total of ten CNG filling stations by December next year selling 100,000 kg/day will be severely tested if it cant secure adequate supplies of gas.