Finance Ministry wants cap on gas price; RIL to sell gas at $4.2

The finance ministry has sent a note to the petroleum ministry seeking "appropriate action" on suggestions in the media for fixing an upper limit on increasing the price of natural gas when the new policy comes into effect next year.

The finance ministry has also asked the petroleum ministry to examine the suggestion that Reliance Industries Ltd (RIL) should meet its commitment of first fulfilling the short-fall in gas supply from the KG Basin field at the old price of $4.2 million British thermal units (mmBtu) before it is allowed to benefit from the new price of $8.4 mmBtu.

A senior petroleum ministry official confirmed that the finance ministry on July 4 sent an office memorandum to the ministry seeking "appropriate action" on these two points raised in editorial articles from two newspapers which were attached along with the note.



These articles had suggested that a cap should be placed on the extent to which natural gas prices can be raised following the June 27 decision of the Cabinet Committee on Economic Affairs to double the rate to $8.4 per mBtu from April 1, 2014. The decision also provides for quarterly revision of the price based on formula using imported liquefied natural gas (LNG) and international hub rates to price domestic gas.

The CCEA had approved pricing of all domestically produced natural gas from April 1, 2014, at an average of the price of imported LNG and the weighted average of gas prices in North America, Europe and Japan.

Another point raised in the in the newspaper articles was that RIL should be made to sell the quantity it has failed to deliver as per its own target during past three years at the current price of $4.2.

There were concerns that leaving the formula open-ended may result in prices rising to $10-12.

The new rate will change every quarter and there were concerns that leaving the formula open-ended may result in prices rising to $10-$12 in the near future. This has given rise to concerns as LNG involves the costly process of compressing the gas, which leads to increase in price. There are fears that the subsidy bill would spin out of control as natural gas is used for producing fertilisers and power, both of which are sold at regulated prices.

Courtesy: Mail Today