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GAS PRICING
REGULATORY FRAMEWORK FOR THE GAS INDUSTRY 
 The Ministry of Petroleum & Natural Gas (MOP&NG) has been regulating theallocation and pricing of gas produced by ONGC and OIL by issuing administrativeorders from time to time. The gas produced by the JVs and by NELP operators isgoverned by the respective production sharing contracts (PSC) between theGovernment and the producers. The setting up of a Petroleum & Natural GasRegulatory Board is under the consideration of the Government and the bill is beingdrafted.Under the existing policy, 100% Foreign Direct Investment (FDI) is allowedthrough the FIPB route for both LNG projects and natural gas pipelineprojects. Import of LNG and natural gas is on OGL. If an entity requires theacquisition of Right of User (ROU) in land, it approaches MOP&NG for theacquisition under the Petroleum & Mineral Pipelines (Acquisition of Right of User in Land) Act, 1962 (P&MP Act, 1962). The draft natural gas pipelinepolicy covering transmission pipelines and local or city gas distributionnetworks is under formulation, with proposed provision in line with thoseunder the draft regulatory board bill.
Pricing of Gas
 The price of gas is under revision for which the Government of India has set up acommittee and it's recommendations are expected soon. Pending finalization of thereport, the price of gas as applicable on 31.12.95 is continuing and the currentconsumer price of gas is Rs. 1850 per thousand cu.m.. (US$ 1.50/MMBTU) exclusiveof royalty, taxes and transportation charges. This price is lower than the CIF price of imported high sulpher fuel oil. However, the Government of India has signedproduction sharing contracts with multinational companies for development andproduction of various fields. The price of gas to be paid for gas purchased by theGas Authority of India Ltd. From such joint ventures is linked to a basket of fuel oil. The balance gas may be marketed by the developers at negotiated prices.
Demand 
Registered demand with Gas Authority of India Ltd. For natural gas in thecountry is around 260 MMSCMD. The Government of India has alsoconstituted an Expert Group to assess the realistic demand for natural gas. This Expert Group has assessed the demand for gas at 146 MMSCMD by theyear 2000 and 188 MMSCMD by the year 2004-5. In view of the largedifference between availability and demand, natural gas supply is allocatedby the Government generally based upon the Imputed Economic Values(IEVs) of natural gas use. Further, in order to utilise natural gas optimally, it isfractionated to derive the value added products and heavier fraction, C2/C3,is being used for petrochemicals industry and LPG as a domestic fuel. Anallocation of 92.92 MMSCMD has been made so far. Power and fertilizer
 
sectors get preference; allocation to power sector amounts to 42.41% and forfertilizer sector 32.05%. Natural gas to the extent of 11% is also being usedas a fuel source in industries and balance for production of LPG etc. The gas industry history in post independent in India can be divided into threephases with respect to major changes.
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Before 1995
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1995 – 2004
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2005 onwardsThe scene before 1995:
 The following were the features of the period before 1995 in the gas pricing in India.
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 There was complete Administered Gas Price
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Only State Enterprises ( companies like IOC, BPCL ,OIL etc) were involved
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Gas Sale was only to designated consumers( like fertilizers and power etc )
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100% Government Controlled Single Price for all users and sources on Costplus basis.
1995-2004 the Reform Period in gas pricing
 This period is characterized by following main events
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Launch of NELP
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Phased Dismantling of APM
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Increase in Gas Production
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Increasing Demand-Supply Gap
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Foreign participation up to 100%
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World class gas discovery in year 2002 in KG basin
2004 onwards pricing had been developed into the following structure
 
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60% Government Controlled APM pricing for- Power, Fertilizers, and Small Customers
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Multiple Prices (US$ 2 – 10 / MMBTU) NELP Pricing
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NOC’s – Administered
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Private – Market Related
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RLNG – Market Related
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As of the latest situations, there is Substantial gap in APM price ($ 1.75 - 2.10/ mmbtu) and market price ($3.00 - 9.00 / MMBTU)As we can clearly see the gas pricing in India is regulated under two categories, firstone APM (administered price mechanism) and second one is the price discovery invarious phases of NELP Policy.One for gas produced from nomination fields of ONGC and OIL, called the APMregime. The second regime provides for market related pricing, which is applicableto gas produced from Production Sharing Contracts (PSC) by Joint Venture/Privatecompanies and for Re gasified LNG.As per the Production Sharing Contract (PSC) signed by the Government under theNew Exploration Licensing Policy (NELP), the operators have the freedom to marketthe gas in the domestic market on arms length basis. Government does not fix priceof gas. The role of the Government is to approve the valuation of gas for thepurpose of determining Government take.As per provisions of the Model Production Sharing Contract signed under NewExploration Licensing Policy, the Contractor has the freedom to sell the gas in thedomestic market on arms length basis.
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