Question

Marketing Management

Provide a brief description of the types of pricing strategies used in OIL and GAS industry in INDIA ,mention the salient features used for the identification of the pricing strategy and various elements in petroleum products Valued by customer and rational behind charging or not charging premium for these elements by companies in this industry

Answer 1

There are multiple pricing  regimes existing in India for natural gas supply. This could be broadly divided into three categories:

• APM Gas
• NON APM Gas
• LNG

Further, there is differential pricing existing for different sectors. Subsidized sectors such as power and fertilizer get relatively less prices as compared to other sectors. Also region specific pricing exists in the country with North Eastern states getting gas at relatively cheaper prices as compared to other parts of the country. Pricing of major share of gas supplies in the Indian Market is controlled and is not market driven as government approval is required before changing the price. Controlled pricing may result in disincentivizing investments in the sector in terms of limited participation from foreign players, who have access to technology, much required in deep-water E&P activities.

Also controlled pricing hampers the competitiveness of consuming sectors (power, fertilizer, domestic) to compete with global energy markets as it leads to low investments in energy efficiency on the demand side. Policy maker have been considering various aspects to look at the pricing of natural gas. Some of the deliberations done by the government of India on pricing include:

• Pooled Pricing Of Gas : As multiple pricing regimes exist in the country, pooling of gas from different sources has been deliberated by the policy makers. A sectoral pool was being considered with separate pools of power and fertilizer customers. Separate pools were considered in view of avoiding cross subsidies between the customer groups and related administrative issues arising.
• Rangarajan Committee recommendations on Pricing : The committee has suggested a uniform gas-pricing, at 'unbiased - arms- length'. The formula of domestic gas pricing should be 12-month trailing average of volume-weighted average at well-head (on net-back basis) for gas imports and volume weighted-average of US Henry Hub, UK NBP and Japanese Crude Cocktail prices. Gas prices are expected to increase based on the suggested framework by Rangarajan Committee.