Discover The Price Of
Gas
Unlike petroleum in a ‘barrel’, priced on the up and up,
reacting to global demand and supply, while roiling the fuel dependent
economies of the world; there is no universal market for its vaporous cousin,
Natural Gas. It needs trapping and liquefying and on-streaming to precise
destinations and applications like simultaneous ducks in a row. The North Sea
off Scotland has a lot. The Americas have a huge amount off-shore, Norway does,
Qatar does, we do too, with modest quantities brought up from Bombay High by
ONGC, and Reliance, ever since the discoveries in the Krishna-Godavari basin in
2002.
And there is talk of going after bigger reserves in the Bay
of Bengal soon, but located at great depths that will mean expensive extraction.
With our overwhelming dependence on foreign sourced petroleum, ranging at
between 70 and 80 per cent of requirement, exploitation of domestic petroleum
and the Natural Gas in our own fields, is of great importance. However, each
gas field involves varying levels of technological and monetary resource inputs,
and this necessitates a somewhat prismatic approach to what is known as ‘price
discovery’.
In Reliance’s case, the original bid to develop the KG Basin
gas in 2004, envisaged a spend of $2.39 billion to extract 40mmscmd of gas.
This was in Mani Shankar Iyer’s tenure. In 2006, under his successor, Oil
Minister Murli Deora, Reliance put forth an estimated spend of $8.8 billion to
extract just double the original yield projected in 2004. Now $8.8 billion was
needed to be spent to extract 80 mmscmd of gas, and attributing all of the
increase to price padding and Deora’s proximity to the Ambanis, may be taking
things a little too far.
Though on the face of it, drawing averages from Natural Gas
exchanges around the globe, the morally impeccable Rangarajan Committee pegs
the ‘market price’ currently at $8.4 per mmbtu. So, to start making a morcha out of gas prices at $1 and so on
is patently a little silly.
A major producer of
Natural Gas like Qatar has bettered its fortunes manifold via long-term
contracts for its almost limitless supplies, but Qatari gas is a volume game
rather than a unit price one measured in mmbtu. And before it found its buyers,
put in its liquefying plants, its tankers and pipelines, the abundant gas was
simply flared to prevent well-head blow-outs, burning like the engines of doom
lighting up the sky for some years on end. And Qatar conversely does not have
much petroleum; unlike neighbouring Saudi Arabia, or Kuwait or Iraq or Iran,
where the gas associated is not plentiful. Oman has some, in modest proportion to its
modest amount of petroleum. And so the relative inventory goes, around the oil
and gas producing nations of the world.
Arvind Kejriwal, with
his FIR, and his letter writing and heckling, may be making his usual spurious and self-serving fuss, with the facts
pared down to comic book proportions. But the matter is not quite like he tells
it. He might want to drum up an election campaign issue over BJP and Congress
collusion and cronyism with big business, in the form of Mukesh Ambani’s
Reliance Industries, but his home-work is decidedly not up to the mark.
Kejriwal disingenuously cites a 2009 Reliance communication
to the Petroleum Ministry, of gas priced at the wellhead at $1 in ‘cost’,
actually 89 cents, but at $ 3.31 in terms of ‘value’ for ‘royalty’ calculations,
payable, of course to the nation via the Government. Reliance has, in fact,
found it difficult, with sharply rising costs, to stick to its original
commitment in 2004 when it won a bid to supply the Krishna-Godavari Gas found
in the K6-D6 sector at $2.43 per mmbtu to NTPC and others, including Anil
Ambani’s fertilizer plants. Further
efforts at more realistic price discovery brought it to the $4.2 price band,
and this was accepted as reasonable by then Finance Minister Pranab Mukherjee,
even though he too is regarded to be close to the Ambanis from Dhirubhai’s
times. But Mukherjee pointed out the obvious fact that the biggest producer of
Natural Gas in India is ONGC, a public sector behemoth, and higher gas prices
benefit it the most.
Petroleum Ministers have come and gone, from Mani Shankar
Iyer, to Jaipal Reddy to Murli Deora and now Veerappa Moily, several of whom
are accused of allegedly favouring Reliance in terms of gas pricing. But the considered
opinion is that $ 4.3 to $4.9 was a realistic ‘market price’ for the substance
in 2007, and $8.4 per mmbtu as per the Rangarajan Committee is the right price
today.
Besides, Reliance Industries claims its costs today are
about $7 per mmbtu making $8.4 a realistic selling price. So, it looks like a price rise is definitely
in the offing. Will it put up the prices of various other things downstream
when implemented? Undoubtedly. Is Reliance padding its costs? Probably no more
than the next company involved in gas exploration and extraction would anywhere
around the world. Besides, there have been a number of expensive dud wells, and
gas recovery from the productive ones has fallen both below expectations and
original estimates. All these factors certainly form part of the equation when
it comes to the pricing of the Natural Gas.
Now can Kejriwal really sustain this item as a campaign
plank, painting it out to be a scandalously inflated thing, or will he have to
abandon it as yet another one of his half-baked ideas designed to inflame the
public imagination?
What would be good for the nation however is a substantial
new flow of oil and gas, maybe in the Bay of Bengal, maybe from our abundant
shale deposits also being looked into by Reliance. This would reduce our
chronic dependence on imports, and feed into our ever increasing demand.
(971 words)
February 25th,
2014
Gautam Mukherjee
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