ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Natural Gas Pricing

Misleading Recommendations

In the important (and controversial) area of prices for natural gas there are relentless efforts by deeply vested interests to obfuscate facts and misinform this impoverished and energy-starved nation about how prices should be set and what they should be. A critique of a recent report by an international agency which was widely reported in the media.

The immediate provocation for this article is a 3 October PTI report which was carried by almost all economic dailies (see, for instance, Economic Times, 3 October, and many other publications on the same day). It is painful to see such an obviously planted infomercial (quoting a report, which is not named, by Standard and Poor’s (S&P) Rating Services), finding easy access to mainstream media in the garb of expert opinion. Even the most rudimentary research or analysis by the editors and economists adorning India’s mainstream media appear not to have been taken.

In repeated op-eds, including a detailed piece carried by EPW in its 8 November 2014 edition, I have explained what is conceptually wrong in the way we are pricing natural gas at the Indian well heads. While the Rangarajan formula compounded its conceptual shortcomings by including an erroneous linkage to liquefied natural gas (LNG) and making a number of simple computational errors, the Narendra Modi government’s formula dropped the LNG linkage, corrected the computational errors and a few of the anomalies while retaining the most important conceptual flaws.

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