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India asks GAIL to import LNG to meet rising city gas demand

(Reuters) - India has mandated state-run GAIL (India) Ltd to import gas and buy from local difficult fields to meet growing demand growth from household and transport sectors as cheaper supplies from old blocks is not enough, a government order said.

City gas distributors have set up sales network to supply gas to transport and households across the country, buoyed by Prime Minister Narendra Modi's aim to raise the share of gas in India's energy mix to 15% by 2030 from 6.7% now.

These companies get a priority in half yearly allocation of gas from the old fields, sold at a cheaper rate of $6.1 per million British thermal units (MMBtu), and the shortfall is met through imports.

The distribution companies pass on the costs of gas purchases to their customers leading to differential pricing of fuel in the country.

Now, the oil ministry has asked GAIL to buy gas produced from the fields in difficult areas at the ceiling price fixed by the government or actual price whichever is lower.

The current ceiling price of the gas from difficult fields is $9.92/MMBtu, lower than the spot prices of the LNG.

"For any further requirement, GAIL will also source long-term regasified liquefied natural gas failing which spot RLNG may be sourced" for mixing with domestic gas to arrive at a uniform base price of the fuel across India, the order said.

Current gas allocation to the transport and household sectors is about 19 MMm3d while the demand is about 21 MMm3d, said Bhanu Patni, senior analyst with India Ratings and Research, a Fitch Group Company.

"Gas pooling will evenly spread the risk of higher prices to all the customers and create a level playing field for the distributors," Patni said.

At present, base price of gas is lower in low demand growth areas as the distributors' reliance on imported gas is low.

The new rules allow quarterly allocation of gas for transport and households sector based on demand in the previous three month, compared to the current norm of allocation in April and September.

Two government sources said the new rules for gas supplies to the transport and household sectors will be applicable from May 16. The oil ministry did not respond to Reuters request for comments.

To account for demand growth, GAIL will supply 2.5% additional gas for a geographical area, the order said.

(Reporting by Nidhi Verma; editing by David Evans)

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