An oil and gas operators' body, that boasts of who's who of industry from Reliance Industries to ONGC, has demanded that price of domestically produced natural gas should be indexed to rate at which LNG is imported in the country.
The Association of Oil and Gas Operators (AOGO), whose members also includes BP plc of UK, GAIL, Cairn, BG Group and BHP Billiton, in a 20-page response to the Saumitra Chaudhuri Committee report on gas price pooling, said LNG import price was a natural benchmark for market driven gas price.
"Any additional domestic gas is a direct substitution of LNG import, hence, LNG import price is a natural reference point (benchmark) for market driven gas price. The other basis of benchmark price could be domestic crude with suitable calorific value adjustment," it wrote to Oil Secretary.
Domestically produced gas is currently priced at $4.2 to $5.73 per million British thermal unit, less than half the rate at which the fuel is imported in ships in its liquid form (liquefied natural gas or LNG).
Both RIL and Oil and Natural Gas Corp (ONGC) want higher price to make newer fields commercially viable.
AOGO said market pricing of domestic gas would increase government take by way of higher royalty, taxes and share of profit petroleum, besides promoting inflow of large private investments in domestic exploration.
Also, various gas fields that are currently marginal or sub-economical, would come into production, it said adding increased domestic production would lead to lesser import of costlier LNG and saving in foreign exchange.
Market pricing of gas would "promote inflow of large private investments in the domestic exploration and production sector," it added.
AOGO said the incremental revenues the government gets from market priced gas can be used to provide direct subsidy to priority sectors like fertiliser.
Questioning the constitution of the Saumitra Chaudhuri Committee, it said the panel comprised of representatives from "PSUs/private companies directly having stake in pooling of gas price (and) excluded pure exploration companies and therefore the Committee does not appear to be fully representative of all the stakeholders."
The Committee in its report does not suggest averaging or pooling of prices of domestic gas and imported LNG but has advocated consumers being forced to buy a portion of their requirement from LNG importers.
AOGO said this recommendation was beyond the scope of the Committee and would lead to distortions in the market.