Innovation Courage Trust 1 l Energy I Real Estate I Agro I Metal & Minerals I Shipping I Power I Ports I SEZs I ICDs I Logistics

Innovation Courage Trust 1l

Energy I Real Estate I Agro I Metal & Minerals I Shipping I Power I Ports I SEZs I ICDs I Logistics



Profit Gas & Free Market Development

Rajeev SharmaChief Executive Officer – Adani Energy Ltd

Innovation Courage Trust

Gas Scenario & Pricing

Profit Gas

Gas Utilisation Policy & Profit Gas “in Kind”

Public & Private Sector views

AEnL Perspective



Profit Gas



AEnL Perspective



APM Gas Non - APM Gas

Domestic Prodn LNG

Pre-NELP Gas NELP GasTerm

Contract Gas

Spot Gas

Administrated Prices Market Linked Free Market Prices

(53 MMSCMD) (50 MMSCMD)

(26 MMSCMD)(24 MMSCMD)

(21 MMSCMD)

(5 MMSCMD)

(19 MMSCMD) (5 MMSCMD)


Gas Scenario

APM

APM51.5%

Non APM48.5%

Non-APM

APM22.6%

Non APM77.4%

APM Non-APM

Share of APM Gas is set to reduce


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



Profit Gas



AEnL Perspective


Profit Gas

“… Globally 40 ~ 50%

gas comes as “Profit

Gas. Most of it is taken

in Value, but there are

countries where Govt.

prefers it in kind”

“Profit Gas” is the fraction of

gas that Private Players have

agreed to share with the Govt.

under the PSC

Profit Gas in “Value” (Cash) ?

Profit Gas in “Kind” ?


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


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


“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



Profit Gas



AEnL Perspective


Gas Utilization Policy & Profit Gas in “Kind”

Profit Gas in “Kind”

• Objective is to:– Secure gas for priority sector – Support socio - economic

developmental activities– Safeguard against high

prices and volatility

Gas Utilization Policy

• 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

“Gas Utilisation Policy” achieves the same objectives as “Kind” Gas - Do we need both?


Free Market Development - Hurdles

• Govt. Directions for allocation of gas (through Gas Utilization Policy)

Whom to Sell?

How much to Sell?

What Price to sell at?

• Profit Gas makes Govt. a large player (Seller) in market

• Profit Gas means gas sales by Govt. at sub-market prices

Profit Gas in “Kind” alongwith Gas Utilisation Policy can create indirect regulations & impede market development



Profit Gas



AEnL Perspective


Public vs Private views

Public Sector view

• It’s a Govt. right which is known to Contractor before submission of bids

• Producer’s share (after deduction of Govt.’s share) can be forecasted in narrow range and hence does not create any uncertainty

• 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

Private Sector view

• Gas in “Kind” is being taken to sell it at sub-market prices

• 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



Profit Gas



AEnL Perspective


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



For free Gas Market


Thanks

“Everything that is really great and inspiring is created when one can labor in freedom” ….Albert Einstein

Documents

Innovation Courage Trust 1 l Energy I Real Estate I Agro I Metal & Minerals I Shipping I Power I Ports I SEZs I ICDs I Logistics