| The top three bids for the pit-head Sasan coal plant were in the 119-141 paise per unit electricity range, and for the imported coal-based Mundra plant the bids ranged between 226 paise and 296 paise a unit. |
| "Such a low price bid would mean that power companies, that are expected to be the major off-takers for the Krishna-Godavari Basin gas, may find their final cost of power uncompetitive in comparison to coal-based producers. This, in turn, will affect the pricing strategies of gas producers like Reliance Industries (RIL), the Gujarat State Petroleum Corporation (GSPC) and the Oil and Natural Gas Corporation (ONGC)," says Yogesh Garg, CEO, Infraline Energy, an energy consultancy. |
| While RIL and the GSPC have planned to bring their KG Basin gas finds on shore by 2009, the ONGC's gas may come onshore by 2010-11. The three firms together would produce around 110 mmscmd gas by 2010-11. |
| The power sector is traditionally the biggest consumer of natural gas in India. So far, the NTPC has been saying that it cannot purchase gas costing more than $3/mmbtu (million meteric british thermal unit), if it has to maintain its tariff competitiveness of Rs 2.10. |
| However, with liquefied natural gas (LNG) price moving up from $9/mmbtu, domestic gas producers are selling the non-controlled-price gas at around $4.5/mmbtu. |
| Sanat Kumar, an analyst at Infraline, says, "A lot of issues that independent power producers faced, like credibility of buyers (read state electricity boards), fuel linkages, environment clearances, have been systematically answered under the UMPP initiative. With these developments, coal as a fuel has become far more attractive to power producers and consumers vis-à-vis gas, which leaves them with little option but to reduce prices." |
| Latent demand: According to an analyst, there is a latent demand for gas in India by the existing power plants and fertiliser units, which will account for 25-30 mmscmd of the projected gas production. But beyond that gas producers may face a tough challenge in selling gas at the kind of price that is being talked about." |
| Taking the Tata Power bid for the Mundra coastal plant as a benchmark, to arrive at a comparable price, gas will have to be sold at $ 4.5 per mmbtu, including transportation tariff and taxes, which would mean a well-head cost of around $3, said the analyst. |
| However, the GAIL India recently raised the price of gas from the Ravva field to $4.5 per mmbtu from $3.3/mmbtu at the well-head. The price of gas on delivery is likely to be $5 per mmbtu, including transportation. |
| Gail is also planning to raise its gas transportation prices to Rs 1,150 per standard cubic metre (scm), while the tariff commission has suggested Rs 750 per scm. |
| Garg pointed out that given the prices being charged and proposed by GAIL, the other players are also likely to sell their gas at similar prices. "Besides, gas prices world-wide are benchmarked against LNG prices which have been rising in the last couple of years," adds Garg. Petronet's recent LNG contract for Dabhol was procured at $9 per mmbtu. |
| "As a result of this paradoxical situation, what we will be looking at in the Indian gas market in the next couple of years is a major price discovery for gas," said Kumar. |
| Maturing markets: However, a senior gas company executive pointed out that while there may be pressure on gas pricing, over a period of time gas prices will stabilise with the maturing of the market. |
| "Given the Indian model of decentralised power production, it will not be viable to transport imported coal to towns and cities situated far away. However, after the completion of the national gas grid the problems in transportation of gas will be resolved," he says. |
| "If we can sell gas at a $5 per mmbtu rate, then in the long run gas-based power plants will be able to compete with others in providing peak power," he adds. |
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