Opinion

How India is unbottling the ‘gas economy’

Richa Mishra | Updated on October 30, 2020 Published on October 30, 2020

Firing up the domestic gas sector

The ‘Natural Gas Marketing Reforms’ will bear fruit when domestic production takes off and the market matures

The coming together of the who’s who of the energy world on a single conference platform is nothing new, but all talking about just one thing — India’s gas reforms — makes one wonder why all the brouhaha about gas.

Earlier this week, at India Energy Forum by CERAWeek, a much talked about subject was India’s ‘Natural Gas Marketing Reforms’. Setting the tone was Prime Minister Narendra Modi, who in his inaugural address said, “Increasing domestic gas production has been a key government priority. We plan to achieve ‘One Nation One Gas Grid’ and shift towards a gas-based economy.”

“To increase domestic production of natural gas and to bring uniformity in the market price discovery of gas, we have announced Natural Gas Marketing Reforms earlier this month. They will give greater marketing freedom in the sale of natural gas through e-bidding. India’s first automated national-level gas trading platform was launched in June this year. This prescribes standard procedures to discover the market price of gas,” Modi said.

Credit to the government to have launched targeted reforms for development of natural gas infrastructure, expansion of city distribution networks, market determined gas pricing, and increased domestic gas production. For LNG developers, India offers a great potential.

But the proof of the pudding is in the eating, as governments do play an important role in the growth of energy sector in any country. Given the fact that the market in India is still nascent, there is always this concern of how effective these measures can be.

As Gauri Jauhar, IHS Markit Executive Director, Energy Transitions & Clean Tech Consulting, puts it: “The latest reforms are with the intent to keep to the letter and spirit of ensuring marketing and pricing freedom for gas pricing in India. They allow transparent price discovery based on e-bidding through an independent agency selected from a panel maintained by the Directorate General of Hydrocarbons. Until India’s newly launched gas trading hubs mature with greater liquidity and the ability to price discover for market clearing on the exchange, these reforms appear to be an intermediate step to allow producers to fully discover the gas price.”

A larger question is how sustainable will this be. The fact is that gas makes only 6 per cent of India’s energy basket mix, at present. While the government is putting all its might, critics are quick to point out that when domestic production is yet to take off and majority of India’s gas requirement continues to be met through imports, this is just cosmetic. In 2014, after the government led by Narendra Modi took over, a decision was taken to defer the Domestic Natural Gas Pricing Guidelines, 2014 and to get the matter re-examined. For this, a committee was appointed and based on the recommendations the new domestic gas pricing policy was approved.

This October ‘Natural Gas Marketing Reforms’ were approved with the objective to prescribe standard procedure to discover market price of gas to be sold in the market by producers, through a transparent and competitive e-bidding process, permit affiliates to participate in bidding process for sale of gas and allow marketing freedom to certain field development plans (FDPs) where production sharing contracts already provide pricing freedom. This is to bring uniformity to the bidding process across various contractual regimes and policies to avoid ambiguity.

Pricing formula

But the catch is: After the Cabinet nod, Minister for Petroleum and Natural Gas Dharmendra Pradhan had clarified that the current gas-pricing formula will continue to be in force for production from existing discoveries awarded under the nomination regime. The price ceiling under the present gas-price formula will also continue.

Today, gas in India is sold at varied prices — the gas under administered price regime at $1.79 a unit (gas is measured in million British thermal units) and other domestic gas in the range of $4.5 to $5.5 per mBtu. While spot LNG prices are about $7.4 per mBtu, long-term RLNG contracts are $6-6.5 per mBtu.

“The new e-bidding process will govern discoveries which came on stream from February 2019 onwards,” he said. Essentially, the new regime will be applicable to producers from the areas offered under the Open Acreage Licensing Policy (OALP) rounds. In this regime, producers have complete marketing and pricing freedom.

Almost 80 per cent of Indian domestic gas is produced from blocks given on nomination basis to national oil companies. So, who is going to benefit? The previous regime will need to be relooked at so that national oil companies like ONGC do not sell at a loss.

Currently, the total domestic production is around 75 mmscmd (million standard cubic metres a day) and imports, 85 mmscmd. Gas demand is directly linked to supply, so the current demand is about 160 mmscmd. So, basically advantage Reliance Industries-BP Joint Venture in Krishna-Godavari Basin off the Andhra Pradesh Coast, Cairn Oil & Gas’ (Vedanta Ltd) Barmer fields in Rajasthan, and ONGC in the Krishna-Godavari Basin, who are raring to go.

If one goes by what critics have to say, it is symbolic right now. It will take a while before the market matures. Yes, the e-bidding platform will make decision-making quicker for the buyers, but no producer will like day-to-day pricing.

Dili abhi dur hai”, but a beginning has been made.

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Published on October 30, 2020
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