Global, domestic gas price disparity irks corporates

Domestic gas producers have ample reasons to complain about under-recoveries. The average price of natural gas at Henry Hub, the largest gas trading platform, in February till now is $8.25-8.5 per million British Thermal Unit (MBTU). The Indian price - Rs 2850 per 1000 cubic meters, which is about $2.7 per MBTU.

While the international natural gas price touched a record peak of $15.5 per MBTU on 15 December 2005 at Henry Hub, the domestic price was hovering around $3 per MBTU.

The dispute in the deals of Mukesh Ambani-controlled Reliance Industries (RIL) with Anil Ambani-controlled Reliance Natural Resources (RNRL) and National Thermal Power Corporation (NTPC) are indicative of the big gap in prices.

"On Henry Hub, the average price of natural gas in January was $9.25 per MBTU and it touched a peak of $11.25. In such a scenario, private sector companies in India are making only nominal profits," Deepak Mahurkar, principal consultant (oil and gas) of PricewaterhouseCoopers, said.

Brijesh Mehra, country head (corporate and investment banking) of ABN Amro Bank, said: "The low price in India will diminish the prospects of most of the companies in exploration and production, and a change is not possible soon. Oil and gas prices have a lot of implications in the political spectrum. Even though the profit margin is low, corporates are showing interest to invest in the sector as they are expecting a change in the future."

A study by PricewaterhouseCoopers shows that the annual demand for natural gas in the country will grow to 63 billion cubic meters (BCM) from the current 30 BCM by 2008-09 if the GDP continus to grow by 6%.

"The production cost of natural gas is $0.5- $2 per MBTU depending upon the conditions of the field. Considering the exploration cost, the Indian price is slightly profitable, but corporates cannot work on this margin for long. The price disparity has troubled Shell's Hazira LNG terminal, and the RIL-NTPC deal is in the court. Liberalisation is slowly creeping in, giving hope to corporates," Mahurkar added.