The USA is now abuzz with talk of shale gas production shaking Opec’s relevance in the global market. FEREIDUN FESHARAKI, chairman of leading energy segments consultancy FACTS Global Energy, predicts that oil prices will come down but natural gas pricing will be a challenge for India. Edited excerpts
How do you read the changes brought about in energy pricing in India over the past two-three years?
The Indian government has been subsidising a lot and what it is now doing is reducing this. The good news is oil prices will go down by 20-25 per cent in the next two to three years — everything from the price of oil to petroleum products and natural gas indexed to oil will come down. The biggest challenge for India, however, is pricing of gas. There are two-three important buyers of gas. The power sector says we want cheap gas like what is in the USA but for that, you have to move to the USA. This part of the world is pretty different. Petronet LNG will be paying $12- 13 per million British thermal unit (mmBtu) next year. It is pointless to say that I will look for cheap gas. The challenge for India is to fight internal rivalries. Priority has to be given to Indian companies to produce domestically.
Like you pay the international gold price in the market, so you need to respect the global price. But increasing the price when those in the USA are coming down invites criticism.
The gas price in India has been increased several times. The latest is the complicated formula of the Rangarajan committee; nobody in the world fully understands what it means. In the existing formula, European and American prices are averaged with the Petronet price. It takes into account the US price but what does the US price got to do with India? It is like saying I want to buy a car here at the average price in the US. Don’t keep comparing with the Americans; they have a local market and if you want to bring that gas, it will cost at least $ 12. The government has come halfway, at $ 6.40. From January 2014, Petronet has to pay $ 12- 13 for gas to the Qataris, so the average price might go up to $ 8 in the future. Oil prices are global and the gas price is regional. The American price will always be lower than the European one and the European one will always will be cheaper than the Asian one. We cannot create a convergence of these markets. The best thing the government can do is to move towards international prices for oil and gas.
There is a view that the domestic gas price should be correlated to cost of production.
The cost of production is $ 1 in Saudi Arabia. Then, why are they asking for $ 100? In the international market, this question is nonsensical. The price of gas or oil or aluminium or gold is not a cost- plus one anywhere in the world. In Qatar, it costs $ 2 but you pay $ 12. The question is, why is GSPC asking for a $ 14- 16 price because this is what they estimate will be the cost of gas from the K- G (Krishna- Godavari) basin. The question is what is the price needed to get new gas into production. It is the new gas we should be worried about. The opposition to a price increase comes because Reliance Industries Ltd is perceived to be making windfall gains. If the price of gas goes up, (government and Natural Gas Corp) will benefit major share of the market. RIL has only 10- 15 per cent of the market. And, if I pay the world market price, somebody will benefit, whether Qatari or ONGC. It doesn’t matter. In China, they raised prices at the same time as in India. The state- owned company makes money there and then they go and make purchases and ONGC- OVL lose. Somebody in the country should make money, rather than money going to Qatar, Nigeria or Australia.
How do you read the changes brought about in energy pricing in India over the past two-three years?
The Indian government has been subsidising a lot and what it is now doing is reducing this. The good news is oil prices will go down by 20-25 per cent in the next two to three years — everything from the price of oil to petroleum products and natural gas indexed to oil will come down. The biggest challenge for India, however, is pricing of gas. There are two-three important buyers of gas. The power sector says we want cheap gas like what is in the USA but for that, you have to move to the USA. This part of the world is pretty different. Petronet LNG will be paying $12- 13 per million British thermal unit (mmBtu) next year. It is pointless to say that I will look for cheap gas. The challenge for India is to fight internal rivalries. Priority has to be given to Indian companies to produce domestically.
Like you pay the international gold price in the market, so you need to respect the global price. But increasing the price when those in the USA are coming down invites criticism.
The gas price in India has been increased several times. The latest is the complicated formula of the Rangarajan committee; nobody in the world fully understands what it means. In the existing formula, European and American prices are averaged with the Petronet price. It takes into account the US price but what does the US price got to do with India? It is like saying I want to buy a car here at the average price in the US. Don’t keep comparing with the Americans; they have a local market and if you want to bring that gas, it will cost at least $ 12. The government has come halfway, at $ 6.40. From January 2014, Petronet has to pay $ 12- 13 for gas to the Qataris, so the average price might go up to $ 8 in the future. Oil prices are global and the gas price is regional. The American price will always be lower than the European one and the European one will always will be cheaper than the Asian one. We cannot create a convergence of these markets. The best thing the government can do is to move towards international prices for oil and gas.
There is a view that the domestic gas price should be correlated to cost of production.
The cost of production is $ 1 in Saudi Arabia. Then, why are they asking for $ 100? In the international market, this question is nonsensical. The price of gas or oil or aluminium or gold is not a cost- plus one anywhere in the world. In Qatar, it costs $ 2 but you pay $ 12. The question is, why is GSPC asking for a $ 14- 16 price because this is what they estimate will be the cost of gas from the K- G (Krishna- Godavari) basin. The question is what is the price needed to get new gas into production. It is the new gas we should be worried about. The opposition to a price increase comes because Reliance Industries Ltd is perceived to be making windfall gains. If the price of gas goes up, (government and Natural Gas Corp) will benefit major share of the market. RIL has only 10- 15 per cent of the market. And, if I pay the world market price, somebody will benefit, whether Qatari or ONGC. It doesn’t matter. In China, they raised prices at the same time as in India. The state- owned company makes money there and then they go and make purchases and ONGC- OVL lose. Somebody in the country should make money, rather than money going to Qatar, Nigeria or Australia.
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