Energy I Real Estate I Agro I Metal & Minerals I Shipping I Power I Ports I SEZs I ICDs I Logistics
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Profit Gas & Free Market Development
Rajeev Sharma
Chief Executive Officer – Adani Energy Ltd
Energy I Real Estate I Agro I Metal & Minerals I Shipping I Power I Ports I SEZs I ICDs I Logistics
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Gas Scenario & Pricing
Profit Gas
Gas Utilisation Policy & Profit Gas “in Kind”
Public & Private Sector views
AEnL Perspective
Innovation
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Gas Scenario & Pricing
Profit Gas
Gas Utilisation Policy & Profit Gas “in Kind”
Public & Private Sector views
AEnL Perspective
Innovation
Courage
Trust
Gas Scenario & Pricing
APM Gas
Non - APM Gas
(53 MMSCMD)
(50 MMSCMD)
Domestic Prodn
LNG
(24 MMSCMD)
(26 MMSCMD)
Pre-NELP Gas
Term
Contract Gas
NELP Gas
(19 MMSCMD)
(5 MMSCMD)
(21 MMSCMD)
Spot Gas
(5 MMSCMD)
Administrated Prices
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Free Market Prices
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Gas Scenario
APM
22.6%
Non APM
48.5%
APM
51.5%
Non APM
77.4%
Non-APM
APM
APM
Non-APM
Share of APM Gas is set to reduce
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Gas Pricing
• Share of APM gas is to reduce substantially over next 5 years
– Gas prices shall be evolved by players in the Market
• Share of Gas in Private sector increasing
– Pvt. Sector to hold majority of the gas in coming years
– Role of Govt. in gas markets naturally fading
• Move from administered pricing to market determined pricing
mechanism in last decade
– Increase in role of private sector
– Process expedited by import of LNG, especially the spot cargoes
• Evolution of Free market
– Producers free to sell gas at market determined prices
– “Arms Length” negotiations between related entities
Stage is set for Free Gas Market in India
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Gas Scenario & Pricing
Profit Gas
Gas Utilisation Policy & Profit Gas “in Kind”
Public & Private Sector views
AEnL Perspective
Innovation
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Profit Gas
“Profit Gas” is the fraction of
gas that Private Players have
“… Globally 40 ~ 50%
agreed to share with the Govt.
gas comes as “Profit
under the PSC
Gas. Most of it is taken
in Value, but there are
countries where Govt.
prefers it in kind”
Profit Gas in
“Value” (Cash) ?
Innovation
Profit Gas in
“Kind” ?
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Trust
Need for Profit Gas in “Kind”
• To secure gas supplies for its priority sectors
– Power, Fertiliser units and CGD networks
• To allocate gas for socio-economic development work
– Allocation gas for development / support to specific industrial segment
• To safeguard itself against price volatility
– Govt. (through PSU units in Power & Fertiliser sector) is one of the
largest consumers of gas
– Provide stable price regime to its units
Gas in ‘Kind” means making Govt a player (seller) in the market
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Impact of Profit Gas in “Kind’
• Makes Govt. a significant player (as seller &
Buyer)
– Becomes the preferred supplier for set of customers
• Power & Fertiliser units in Public Sector
– Limits options for free trade of gas for producers
• Reduced market (non-PSUs)
• Limits the ability to realise true value of gas
• Govt. gets the ability to create benchmark prices
– Tendency to create sub-market price
– Creates ‘dual pricing’ mechanism as per current practice
• Sub-market price – for Priority sector
• Market determined – for others
– Makes price determination and price visibility difficult
• Uncertainty on producer’s share of gas
– Back & forth switching from “in Kind” to “in Value”
– Inability to commit long term gas
Profit Gas in “Kind” creates indirect regulation in market
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“Cash” as alternative to “Kind” Gas
• Higher Govt. revenues
– Large revenue stream in ‘high price’ era
• “Cash” can support various socio-economic
activities in different sectors
– Funds can be utilised for non Oil and gas
activities also
• Market Determined pricing
– “Single” pricing
– No need for creating sub-market prices
• Helps in making priority sectors develop
business models to sustain market prices /
conditions
– Way to remove subsidies
• Subsidies (if required) to priority sectors can be
supported through allocations from “Cash” earnt
– Higher accountability and transparency
“Cash” can substitute “Kind” without affecting Govt.’s priorities
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Gas Scenario & Pricing
Profit Gas
Gas Utilisation Policy & Profit Gas “in Kind”
Public & Private Sector views
AEnL Perspective
Innovation
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Gas Utilization Policy & Profit Gas in “Kind”
Gas Utilization Policy
Profit Gas in “Kind”
• Objective is to:
– Strengthen core sectors of
economy
– Optimal utilization of scarce
resource
– Power, Fertiliser, Domestic
use to be accorded high
priority for gas allocation
• Objective is to:
– Secure gas for priority sector
– Support socio - economic
developmental activities
– Safeguard
against
high
prices and volatility
“Gas Utilisation Policy” achieves the same objectives as “Kind” Gas - Do we need both?
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Free Market Development - Hurdles
• Profit Gas makes Govt. a
large player (Seller) in
market
Whom to Sell?
• Profit Gas means gas
sales by Govt. at submarket prices
How much to Sell?
What Price to sell at?
• Govt. Directions for
allocation of gas (through
Gas Utilization Policy)
Profit Gas in “Kind” alongwith Gas Utilisation Policy can create indirect regulations &
impede market development
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Trust
Gas Scenario & Pricing
Profit Gas
Gas Utilisation Policy & Profit Gas “in Kind”
Public & Private Sector views
AEnL Perspective
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Public vs Private views
Public Sector view
Private Sector view
•
It’s a Govt. right which is known to
Contractor before submission of bids
•
Gas in “Kind” is being taken to sell it
at sub-market prices
•
Producer’s share (after deduction of
Govt.’s share) can be forecasted in
narrow range and hence does not
create any uncertainty
•
Govt.’s right / ability to switch back &
forth between “in kind” and “in
value” creates uncertainty
•
Most Govt.’s prefer profit gas in “in
value”
•
Restricts market for producers and
limits premiums based on market
conditions – leading to indirect price
regulation
•
Seen as hurdle to market access –
one of the reasons why big players
are not seen in NELP rounds
•
•
•
Preventing Govt. from taking gas in
Kind” is to have complete control on
the marketing and making additional
margins by selling gas at premium
Profit Gas “in Kind” is common in
South East countries
Reduces Producers risk of market
Innovation
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Gas Scenario & Pricing
Profit Gas
Gas Utilisation Policy & Profit Gas “in Kind”
Public & Private Sector views
AEnL Perspective
Innovation
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AEnL’s Perspective
• Share of APM Gas is set to reduce
– Share of gas in private sector increasing with
Govt.’s encouraging policies
– Leading to free market place
• Profit Gas “in kind” has potential to :
– Make Govt. a large player (as seller)
– Create market at sub-market prices
• Contradicts Govt.’s efforts to free the market
– Limit marketing freedom of producers
• Gas Utilization Policy can achieve the
objectives & obligations of Govt.
– Priority allocation to key sectors
• Power, Fertiliser & CGD
– Price based on “market determination” / “arms
length” negotiations
No “U –Turn” – Let the good work continue
Innovation
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For free Gas Market
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“Everything that is really great and inspiring is created when one can labor in freedom”
….Albert Einstein
Thanks
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