GAIL criticised over $0.12 extra charge for PMT gas

Vol 11, PW 25 (01 May 08) Midstream & Downstream

GAIL is coming under fire over plans to charge $0.12/mmbtu marketing margin in its talks with retailers for PMT gas.

“What marketing is GAIL doing to justify charging this amountâ€‌ asks an angry source. “Until now we have been buying from the PMT consortium on our own.

GAIL has just entered the picture, thanks to the oil ministry.â€‌ At the most, we are told, GAIL can describe itself as a â€کdistributor’ of PMT gas to companies that have been approved by the oil ministry, not a â€کmarketer’.

“If GAIL is allowed to charge $0.12,â€‌ we are told, “Reliance will also demand the same amount for its D6 gas when it is sold.â€‌ Until now, Reliance has been planning to charge customers $0.06/mmbtu in marketing margin - half the proposed GAIL figure.

Outrage at GAIL’s attempt to impose a $0.12 marketing margin follows the government’s controversial decision to force PMT consortium partners British Gas (30%), Reliance (30%) and ONGC (40%) to sell the entire 17.3m cm/d gas output from the fields to GAIL with effect from April 1 this year. Before then GAIL was receiving only 5m cm/d, with the rest sold directly to customers GSPC, Gujarat Gas and Reliance-owned IPCL – all of which received significantly more before the deal was signed in the early hours of April 1.

Only GSPC appears ready to pay whatever marketing margin GAIL asks – knowing full well that whatever it pays will always be cheaper than R-LNG. “We have agreed to pay the full marketing margin,â€‌ confirms GSPC, “partly by absorbing it and partly by passing it on to our customers.

â€‌ GSPC justifies its position saying PMT gas at $5.57/mmbtu is “a bargainâ€‌ compared to spot LNG at $14/mmbtu. In such a situation, argues GSPC, $0.12 marketing margin is nothing.

GSPC believes GAIL will eventually settle for $0.06 marketing margin to reflect what it will pay Reliance for D6 gas. “Whatever amount is fixed by GAIL we are ready to pay it,â€‌ says GSPC.

“Beggars can’t be choosers.â€‌