Mercados gas pricing draft expected this month

Vol 13, PW 13 (03 Dec 09) People & Policy

Mercados Energy Markets will submit the first draft of a feasibility report about the potential for a uniform gas pricing regime in India by the end of this month (December).

GAIL commissioned the study on October 25, as directed by the oil ministry, and sent a Letter of Intent instructing the Indian arm of the Spanish consultancy to submit a draft report within eight weeks, and a final report within 10 weeks. Mercados tells PETROWATCH that its brief is to analyse gas pricing models in â€کdeveloped’ gas markets – like Europe where gas is mainly sold at market-determined prices - to understand if a uniform gas pricing regime is advisable in a nascent market like India.

“Our India office,â€‌ Mercados tells us, “is waiting for suggestions from its parent company in Spain, which has prepared similar reports before on Nigeria, Thailand and Italy.â€‌ He adds that parent company Mercados will provide inputs about global best practice while the India office will work with GAIL and the oil ministry.

We also learn that Mercados will invite views about uniform pricing from major gas consumers such as steel, power and fertiliser companies after consulting GAIL and the oil ministry. For now Mercados is busy assessing natural gas demand in India until 2013-2014.

“They are using in-house data to prepare these estimates,â€‌ reports a source. “Once the demand assessment is done, Mercados will make presentations to GAIL, and then to gas customers.

â€‌ Some believe a single gas price would be good for India. “A uniform gas price would comfort investors,â€‌ says the director of an advisory firm.

“Companies that want to invest in exploration would know upfront what price they can get if they discover gas.â€‌ He adds that a government approved uniform gas pricing formula would allow investors to calculate potential returns, and that even end-users like fertiliser companies would benefit.