Create separate price pools for power, fert: GAIL expert

An advisor hired by state-owned natural gas distributor Gail India has recommended separate price pooling for power and fertiliser producers—the major users of natural gas who will increasingly depend on imported natural gas that has high price volatility. In a study commissioned by Gail on natural gas at the behest of the petroleum ministry, Mercados Energy Markets India has strongly suggested that price pooling should not be mandatory for all producers and consumers, but should be applicable for power and fertilizer makers. These two sectors alone consume about two third of the 132-million standard cubic meters a day (mmscmd) natural gas produced in the country.

In many countries, pooled price is used to reduce the volatility and unpredictability in the price of agricultural produce so that both the farmers and the consumers benefit. Under the proposed scheme, gas producers would continue to get the price that they are entitled to as per their production sharing contract with the government, but gas consumers would get it at a uniform price. The government wants price pooling because power and fertiliser makers, who would increasingly rely on imported gas in the future, are unable to make major investments because gas price is linked to crude price that is subjected to high volatility. Growth in both the sectors is essential for meeting the needs of a fast growing economy. Their growth will also facilitate creation of a strong network of gas pipeline across the country.

“We recommend separate pools for the two sectors to avoid cross subsidies between the customer groups and administration issues that a combined pool would present,” said Mercados in its report. The consultant has also recommended Gail as the administrator of the proposed pools because it already has experience in pooling of re-gasified liquefied natural gas. The operator has to allocate gas on an arms length basis. The cost-based sectoral pool does not require any legislative changes.

Introducing it only for the power and fertiliser industries leaves adequate room for an alternate market to develop for other industries and even for power and fertiliser makers who do not wish to be a part of the pool. This would facilitate price discovery for new gas supplies. While the benefits of cost pooling is not restricted to the power and fertiliser sectors only, Mercados did not suggest it for other sectors such as petrochemicals as it could get more complex and drive up costs Sectoral pool brings price stabilisation in selected sectors, leaving the other sectors free to access their supplies from other sources.

Natural Gas from various sources will become a part of these pools. The operator will assess the demand and allocate gas as per the gas utilisation policy. Mercados said there was no need for pooling of transport charges as it leads to inefficiency. Natural gas’ share in the country’s total energy basket is predicted to go up from 10% now to 25% in the next 15 years. The new demand is estimated to come mainly be from power and fertiliser sectors....

Source: Financial Express

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