May 2: A debate on what should be the right price for the domestic gas produced in the country has been going on for quite a long time, with no solution in sight. There have been innumerable suggestions, the latest being the Rangarajan committee recommendations, on the right price of gas but no decision has yet been taken by the government.
8The gas producers in India are up in arms against the government's lopsided policies which, they claim, have obfuscated the search and supply of hydrocarbons in India. A background note under circulation has put forward the industry's argument by claiming that when the average cost and effort to explore, drill, develop and produce an oil or gas well is the same, why is the pricing of the two products treated differently. The rates for hiring a rig to drill a well are not quoted separately for oil and gas and the companies have to pay a uniform day rate for hiring a drilling rig.
8The crude oil being produced, domestically or imported, is priced today at $100-110/barrels. When converted to a common metric unit, the price of oil works out to approximately $18-20/mmBtu, when the domestic gas is priced at around only $4/mmBtu, which is four and half times lower than the oil price, the note says.
8While domestically produced gas is disproportionately under-priced, imported LNG is selling at an average of $13-14/mmBtu. This gives an impression that India is more fixated on importing LNG than focused on the domestic investment in the gas sector in India. It seems that the country sees merit only in transferring value to the importing countries -- which is pegged at around $2-3 trillion -- such as Qatar, Australia and others, the note claims.
8The gas producers are of the view that only market-linked domestic gas prices can maximize activities required to unlock the full E&P potential of India. Right investments will only follow when there is a right regulatory and policy environment which encourages market driven prices without any discrimination in tax and fiscal policies between oil and gas.
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