With approximately six pricing regimes being prevalent in the natural gas sector, the government plans to move towards uniform gas pricing. Consultants Mercados Energy Markets India Pvt Ltd is working with it to suggest a model in this regard. In an interview with Ajay Modi & Jyoti Mukul, Mercados chief executive officer Anish De says a gas pool would help the market mature. Edited excerpts:
What is the need to have a pooled price for natural gas?
From the consumer perspective, there are a number of gas prices that prevail in the country, which is confusing and costly and also lead to inefficiencies in consumption. Price should reflect the cost of a commodity, but for similarly placed consumers, different prices can put them at a disadvantage. In India, gas pricing is a legacy and, therefore, the government decided to have a look at it.
Pooled price is being talked about for consumers, but can the price for producers be pooled, too?
We are not suggesting any changes in producer pricing. Pooling remains independent of producer price and producers’ interest is not affected. It will be that only supply will be uniform.
Who will pool the price and collect it from consumers, and give it to the producers?
The pool operator will collect the average price and distribute it among the producers. It has to be an independent function, so you need to have independent operators. For instance, in the power exchanges there are clearing houses. You could do a similar thing in gas prices.
Will there be surplus revenue in pooled pricing which will be left with the pool operator?
It will be a revenue-neutral system.
How many prices are being considered for the pool and what are they?
It will pool six prices: Long-term LNG, spot LNG, gas sold under administered price mechanism (APM) to the North East, APM gas sold to other regions, Panna Mukta Tapti gas and D6 (Reliance Industries Ltd) gas.
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What kind of incentive does a producer have in pooled prices? Besides, the Ministry of Petroleum and Natural Gas has moved a proposal to increase the price of gas produced from administered fields. Will it not increase the average pooled price?
That (price increase) incentive is independent of the pooling. Price increase has to be an alternate mechanism. It (APM gas price increase) does not defeat the concept of pooling. The average, though, will go up.
Will the pooled price be only for power and fertiliser sectors?
Fertiliser and power sectors are large consumers and, therefore, price signalling is important for them. There is a gas utilisation policy and preferential allocation under it. There is also a single price for all consumers of D6 gas. However, there is no need to have a pooled price for city gas consumers.
Some sort of pool mechanism was tried out for gas when supply to Dabhol began. What is your view on it?
That pooling was for a more limited purpose of getting the asset (Dabhol power plant) functional. This is for the developing market and has a much wider perspective. Here, the pool will take a conscience call.