Natural gas pricing

Abstract

This report has been prepared based on the study we have conducted for our CCS Project. The natural gas has great potential to be a significant energy source for our country’s energy needs. The natural gas market is at nascent stage and the exploration and production activities are increasing at a rapid pace. This report aims to establish a gas pricing model which can lead to development of well functioning efficient gas market in India. For our research we have studied and analyzed the recommendations made by the three committees set up by Government of India; Rangarajan Committee (2006), Chaturvedi Committee (2008) and Kirit Parikh committee (2010). These committees have come up with various proposed mechanisms to free the oil market from Government control. We have also studied the much publicized RNRL vs. RIL dispute and the Supreme Court judgment passed in May 2010. This case directly deals with current issues present in the gas pricing and how the current gas market can lead to contentions in the future. We have used various insights and proposals made by these committees and Supreme Court to guide us in the development of a model for setting up the natural gas price. The model aims to establish a single and uniform price of natural gas for all the customers preventing any distortions and potential diversions. The model we have developed is based on the import parity pricing and it also addresses some of the concerns raised in such a pricing mechanism. The subsidies are considered to be necessary for development and equitable distribution of benefits across the country and we have suggested the mechanism for handling the subsidies in such a way that it does not lead to distortion in the market price of the gas.