Gas Price Pooling Policy 2015
From July 1, 2015; there is a ‘Gas price pooling’ mechanism in place in India. Under this scheme; the price of domestic natural gas is averaged or pooled with the cost of imported LNG to create a uniform rate for fertilizer plants. All fertilizer plants in the country get the feedstock natural gas to make urea at this uniform price.
The Gas Price Pooling seeks to change the industry dynamics in Urea sector by levelling gas costs for all players. Earlier, the situation was that every plant needed make its own arrangement / contracts individually on varied costs from different suppliers. This situation was particularly disadvantageous for the plants which had no access to cheap domestic gas. By pooling domestic gas with imported gas, the delivered gas cost for all units will be uniform for all players who are connected to the natural gas grid.
Implications of this policy
- Under the 2012 policy, the onus of contracting gas supply for new units was on the individual players. This has been done away with now.
- Since price is same for input gas for all plants, and the subsidy is also same provided by the Government (Cost -Rs. 5310 per tonne); this policy would incentivise the competition among the various fertilizers makers and this competition would be on energy efficiency and production volume mainly (not on price of natural gas input).
- This policy allows the industry to focus on its core business of increasing urea production at healthy energy efficiency. Their problem of dealing with the gas supply has been now left to LNG suppliers and gas pool operator GAIL (India) Ltd.
We note here that the price of domestic gas is almost half of the imported gas. Fertiliser plants consume about 42.25 million standard cubic meters per day of gas for manufacture of subsidised urea. Out of this, 26.50 mmscmd comes from domestic fields and the rest 15.75 mmscmd is imported liquefied natural gas (LNG).
