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Centre picks GAIL to buy Vedanta’s Barmer gas output

Barmer block’s production sharing contract provides pricing freedom to the producer but does not offer marketing freedom 

Centre picks GAIL to buy Vedanta’s Barmer gas output

New Delhi: The government has nominated state-operated GAIL to purchase the gas output from Vedanta’s Barmer block. The block, which would generate up to 4 million metric standard cubic meters a day (MMSCMD), has started pumping the energy resource recently after contributing to one-fourth of the country’s domestic crude oil production. The Barmer block has to sell the output to an entity picked by the Centre.

The Barmer block’s production sharing contract provides pricing freedom to the producer but does not offer marketing freedom. Highlighting the difficulty in settling on a rate in the absence of a broadly acceptable domestic-market benchmark, a lengthy negotiation between GAIL and Vedanta has not yielded an agreement as of now. “We are in the middle of a productive commercial discussion, which will enable all stakeholders to optimise revenue, investment, and production. We cannot, however, comment on speculation about commercial discussions since these are confidential,” Vedanta told The Economic Times.

No agreement on pricing

There was a wide gap between the two parties with the consumer preferring the domestic formula price or a reasonable margin on top of the cost of production and seller insisting on a rate equal to that of imported liquefied natural gas (LNG). There are at least five gas price reference points in India for producers and buyers. Since there is no widely acceptable domestic-market benchmark, settling on a rate is an issue for both buyers and sellers. A domestic formula price of US$ 3.36 per million metric British thermal unit (MMBTU) is applicable to the majority of gas generated in India.