India's new gas pricing formula makes no sense, says energy expert Fereidun Fesharaki

New Delhi: Slamming the new natural gas formula as making “no sense”, world renowned energy expert Fereidun Fesharaki has said only guaranteed market prices along with stable policy regime would bring in investments from global majors. [caption id=“attachment_2106355” align=“alignleft” width=“380”]  Courtesy www.fgenergy.com[/caption] Fesharaki, who advises many countries including OPEC kingpin Saudi Arabia on energy policy, said arriving at a price for gas produced in India using average of rates in US, Canada and Russia was like “wanting to buy an house in San Francisco but I want to index it to price in Delhi.” “US is gas surplus country, exporting LNG (liquefied natural gas (LNG). Canada is a gas surplus country, Russia is a gas surplus country. Why do I get their numbers and average it for India. Makes no sense,” he told PTI in an interview. The $3-4 per million British thermal unit price in United States was reflective of the surplus gas scenario in US and rates will rise the moment exports are allowed, he said. Similarly, Russia flares gas equivalent to India’s annual production and rates prevalent there are not reflective of market scenario. He said US gas in form of LNG will be $7 higher than the current Henry Hub price of under $3 per mmBtu on account of liquefication, transport, pipeline and regassification cost. The rate will compare to the $5.61 per mmBtu price approved by the government for period upto March end. Similarly, bringing gas through a transnational pipeline like Turkmenistan-Afghanistan-Pakistan-India (TAPI) will cost no less than $10-11 at the Indian border, he said, adding this was without accounting for the hardships in moving the gas through hostile territories without the pipeline being blown up. Global energy giants, he said, want “market prices together with stable regulatory regime and no company will invest in India without these, no matter how many NELP round India does.” The new price was 33 percent higher than $4.2 per mmBtu old rate but lower than $8.4 per mmBtu approved by the previous UPA government. The new price is also lower than $5.71 rate charged for western offshore gas field and $8 that Cairn charges for gas from its Rajasthan block. “You come up with this formula, and wonder why no one is investing,” he said, adding the “government do not want to act on anything that is considered remotely benefiting Reliance Industries”. “The question here is not of Reliance. It is of ONGC and GPSC, two state companies which are sitting up on gas resources but not developing because they don’t find the prices remunerative enough,” he said. India, he said, has to allow a free float of gas price and put a cap at say $10. Fesharaki, Chairman of FACTS Global Energy, said while India took the “brave initiative” on the oil side by using the slide in international oil prices to decontrol diesel rates, “where there is a big gap is on gas price, gas policy.” “If I live in neighbourhood I would like to see what is happening in my neighbourhood (on gas prices). What is Japan doing, what is Korea doing, what is Indonesia doing. Not what America is doing, it has nothing to do with me,” Fesharaki said. “If you want low prices, you have to move to the US.” Stating that power sector will complain no matter what price you give them, he said, “the government came up with notion of average price. This average price is a very senseless average.” He said gas price should be benchmarked against fuel oil which costs 10-15 percent lower than crude oil. And if rates are benchmarked at a discount, say 10-15 percent, to fuel oil price, gas price will effectively be up to 30 percent discount to crude oil prices. “Why not make in India everything, not just manufacturing. India has resources. India has much more gas than oil. But foreign investors are all afraid (to invest)… let the price of gas float in index to fuel oil with a cap of $10 per mmBtu,” he said. PTI