Gas index in the pipeline

NEW DELHI: Targeting a reference price, the central government is finally working towards creating a benchmark index for gas prices.

The creation of the proposed gas price index would help develop the gas market and bring clarity in gas pricing for future contracts and consumers.

In the US, which has an active gas trade, the price at Henry Hub in Louisiana, a point of intersection for multiple gas pipelines, serves as the reference. India is yet to have an equivalent.

Nodal pipeline company Gail is conducting a study in consultation with the petroleum ministry to develop the index.
���There is a need to have such an index given the heterogeneous consumer base and different prices that exist in the market,��� Gail CMD UB Chowbey told ET.

Confirming the development, petroleum secretary RS Pandey said: ���Gail is undertaking the study, which will be ready in three months. We cannot violate existing production-sharing contracts (PSCs), as we are under legal obligation. We could perhaps look at a pooling mechanism.���

The move comes as a long-drawn battle is on in courts to settle the price at which gas should be sold. The lack of clarity in PSCs, more so as they lend themselves to disparate interpretations, has led to legal disputes.

Already, the terms of reference for the study have been finalised. The index will be based on the consumer trends of various segments, though there may be many obstacles here.

For instance, a long-term power consumer that contracts gas for 15 to 17 years is likely to quote a lower price than an industrial consumer. Consumers who have been sitting on idle capacity too would opt to pay a premium to get the gas. But neither of these quoted prices can be the price-setter for all consumers across all sectors.