Dynamism in gas pricing

There is a new, welcome dynamism when it comes to the domestic pricing of natural gas, the cleanest fossil fuel. Reportedly, power major NTPC is to call for daily price bids to competitively source a part of its requirements of gas. The strategy makes perfect sense. The right pricing is of the essence to better allocate resources for gas, which accounts for a poor 8% of India’s energy mix. Already, there is a huge and growing demand-supply gap in gas. Production is put at just about 87 million standard cubic meters per day (mmscmd). But demand is estimated to be at least 50% higher, and rising. Also, effective supply is really no more than 74 mmscmd, after providing for internal consumption, extraction of LPG and flaring. And the bulk of gas usage is for power generation and as fertiliser feedstock. It is good that since last year, the pricing of gas for ‘commercial’ users has been decontrolled, to better reflect scarcity value. But for power and fertiliser consumption, gas prices remain very much administered and repressed by fiat, and wholly in variance with market-determined prices. And here, sectoral rigidities and warped policies in power and fertilisers may seem to limit the scope for regular price discovery in gas. But as the NTPC initiative suggests, the potential for efficiency prices in gas is simply enormous.
NTPC, with its current 17 mmscmd gas requirement, would source about 4 mmscmd via the bidding route and invite quotes from ONGC, Gail, Petronet LNG, GSPC, Shell, et al. It is not clear if the market would be online, with the requisite systems for billing and settlement. Presumably, at least, the minimal physical infrastructure to deliver gas is in place. But then, one recent estimate put the investment requirement for a pan-India gas network at a whopping $44 billion. Attracting resources on such scale would require proper investor comfort. This means time-of-day metering for electric supply so as to make viable dearer gas-fired, peaking power. Also required are regular trading in gas futures, as also a comprehensive natural gas Act.


-- The Economic Times Editorial