GAIL will buy natural gas from domestic difficult fields and international markets and pool it with cheap domestic produce for supply to city gas distributors to meet their growing demand, as per a new guideline issued by the petroleum and natural gas ministry.
State-run GAIL is the authorised agency that oversees supplies to city gas companies. The gas supplied to city gas distributors for use in transport and homes is priced according to a government-set formula and is traditionally much cheaper than other domestic gas, which can be sold at market rates.
Expanding the city gas network has increased demand for gas while production of formula-priced gas hasn't increased and must be allocated to other sectors as well such as fertiliser and power.
To meet the shortfall in the availability of domestic gas, GAIL will source domestic gas from difficult fields at ceiling price or actual price, whichever is lower, as per the prevailing guidelines for mixing with available domestic supplies, the ministry said.
Prices of gas from difficult fields, mainly operated by Reliance Industries and BP, can't rise above a ceiling the government decides every six months. If supplies from difficult fields can't meet the requirement, GAIL will also import liquefied natural gas under long-term contracts or from the spot market. For the current quarter, since long-term gas may not be available, GAIL will import spot LNG to meet any shortfall.
"Pooled natural gas will be supplied by GAIL to all city gas distribution entities at a uniform base price," the ministry said.
GAIL will get to charge a marketing margin on supplies, which would boost its earnings.The government has also met a key demand by city gas companies of revising gas allocation every quarter
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