Study on Common Pool Price Mechanism for Natural Gas in the Country

Study on Common Pool Price Mechanism for

Natural Gas in the country

Prepared for:

GAIL (INDIA) LIMITED

Prepared by:

MERCADOS ENERGY MARKETS INDIA PRIVATE

LIMITED

DATE: 28 January 2010

CLIENT CODE: GAIL200901

STUDY ON COMMON POOL PRICE MECHANISM FOR

NATURAL GAS IN THE COUNTRY

TABLE OF CONTENTS

I OBJECTIVE OF THE STUDY ............................................................................... I-6

II BROAD APPROACH AND METHODOLOGY ...................................................... II-8

III INTRODUCTION TO THE INDIAN NATURAL GAS MARKET ........................... III-9

1. DEVELOPMENT OF THE NATURAL GAS MARKETS IN INDIA ........................................ III-9

2. PRODUCTION AND SUPPLY OF NATURAL GAS ...................................................... III-9

3. SECTOR WISE NATURAL GAS DEMAND............................................................ III-10

4. NATURAL GAS BALANCE – NEXT FIVE YEARS..................................................... III-11

5. PIPELINE INFRASTRUCTURE ....................................................................... III-12

IV CURRENT NATURAL GAS PRICING MECHANISM ......................................... IV-14

1. APM GAS PRICING .................................................................................. IV-14

2. PRICING OF GAS UNDER PRE-NELP PRODUCTION SHARING CONTRACTS ....................... IV-14

3. PRICING OF GAS WITH REFERENCE TO NELP PROVISIONS ....................................... IV-15

4. IMPORTED GAS (LNG) PRICING ................................................................... IV-15

V NEED FOR PRICE POOLING .......................................................................... V-17

VI INTRODUCTION TO POOL PRICE MECHANISMS ......................................... VI-19

1. DEFINING THE TYPES OF COMMODITY POOLS..................................................... VI-19

2. DETAILED DESCRIPTION OF THE OPTION CONSIDERED FOR COMMODITY PRICE POOLING ... VI-20

2.1. COST...