In his budget speech for 2016-17, finance minister, Arun Jaitely lamented the situation of “rising demand, near-stagnation in production and consequent rapid increase in import” and argued that there was need to incentivize gas production from deep water, ultra-deep water and high-pressure-high-temperature areas. “A proposal is under consideration for new discoveries and areas which are yet to commence production, first to provide calibrated marketing freedom; and second, to do so at a pre-determined ceiling price to be discovered on the principle of landed price of alternative fuels”. The concern expressed in the speech is not new. The government was mindful of this in October, 2014 when it notified guidelines to fix price of all domestic gas based on weighted average...
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Category: Alternative policy scenario
Is India running out of gas?
The news of gas supply from the high profile Reliance Industries Limited (RIL) operated KG-DWN-98/3 field off Andhra coast (better known as KG-D6) drying up by 2020 has come as a shocker for energy deficient India that imports 80% of its oil and nearly 40% of its gas requirements for running fertilizers, power plants, households etc and is aspiring to move rapidly towards building indigenous production capability. Prior to 2000, domestic gas supplies were coming primarily from major gas finds in the Bombay High and South Bassein area in west offshore discovered in late 70s with total production of around 75 million standard cubic meter [mmscmd]. A second bout of major discoveries came around the turn of present century. This...
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Low commodity prices – good omen for stronger India
Only about 18 months ago, there was an all round mood of despondency due to skyrocketing international price of crude oil and gas for which India depends heavily on imports for its energy requirements. This was the single most important factor responsible for high current account deficit [CAD], pressure on the Rupee and the inflationary effect on the economy. The scenario on the subsidy front was equally grim. Oil and gas being key ingredients in production of fertilizers and petroleum products [POL], this also led to ballooning subsidy in the face of control on retail prices of latter at low level. During 2013-14, fertilizers and POL subsidies alone were around Rs 240,000 crores putting huge stress on the budget and...
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Fuel price – have consumers been taken for a ride?
The international price of crude oil has plummeted from a high of US$ 110 per barrel in June 2014 to a low of US$ 36 per barrel [lowest in 11 years] at present. In the back drop of the decision of OPEC [it accounts for 40% of world supplies and 85% of India’s import] not to take recourse to any output cut [a normal tactics employed by it in the past to prevent price from sliding], substantial pumping of oil by Iran, high production of shale gas in US and continuing slowdown in global demand, the price will continue to slide. Goldman Sachs predicts this to touch US$ 20 per barrel. Considering India’s heavy dependence on import of crude for...
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Direct LPG subsidy transfer – a ‘torch-bearer’
The Guinness Book of World Records has recognized India’s direct LPG subsidy transfer as the world’s largest direct benefit transfer [DBT] program. The program nick-named PAHAL [Pratyaksha Hastaantarit Laabh] has within its ambit 146.2 million households [as on December 3, 2015]. While, the recognition is for it gigantic coverage and unprecedented success in reaching out the benefit through the length and breadth of the country, it is symptomatic of metaphorical changes that could come about in the way subsidies are administered and the big push that it could give to Modi’s reform agenda. For decades, Union government gave subsidy on LPG, diesel, kerosene etc by directing oil PSUs viz., Indian Oil Corporation Limited [IOCL], Bharat Petroleum Corporation Limited [BPCL] and...
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New gas policy – attractive even without pricing freedom
A consultation paper floated by ministry of petroleum and natural gas [MPNG] for stakeholders comments has proposed granting freedom of pricing and marketing to producers of natural gas. This has led exploration and production [E&P] companies to believe that this will enable them to get much higher price than what they are getting under the present dispensation of administered pricing. Ever since a high power committee under Dr C Rangarajan submitted its report in December, 2012 [based on the formula recommended by it, price of domestic gas was US$ 8.4 per mBtu], E&P companies have been clamouring for market-based pricing. But, Modi – government which took charge in May, 2014 neither accepted Rangarajan formula nor their demand for market determined...
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Why falling imported gas price brings no relief
As per reports, Petronet LNG Limited, a consortium of four PSUs (ONGC, GAIL, IOCL and BPCL) is shelling out Rs 400 crore every quarter in demurrage charges for ships idling because of its PSU buyers are refusing to purchase expensive imported gas. This is just the tip of iceberg. At the outset, let us capture a few facts. Petronet had entered in to a long-term 25 year contract with RasGas of Qatar for import of 7.5 million tonnes a year LNG or around 30 million standard cubic metre per day (mmscmd). For transportation to its terminal at Dahej, it had entered in to a time-charter agreement with Mitsui OSK Lines et al. The PSUs (sans ONGC) had committed to buy...
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Why falling imported gas price brings no relief?
Petronet LNG Limited, a consortium of 4 public sector undertakings [PSUs] viz., Oil and Natural Gas Corporation [ONGC], Gas Authority of India Limited [GAIL], Indian Oil Corporation Limited [IOCL] and Bharat Petroleum Corporation Limited [BPCL] – India’s leading LNG [liquefied natural gas] importer – is shelling out Rs 400 crores every quarter in demurrage charges for ships idling because of its PSU buyers refusing to buy expensive imported gas. At a time when Modi – government is imparting momentum to economic reforms and an important component is to make the PSUs cost competitive and improve their profitability, a loss of Rs 1600 crores annually by a joint venture [JV] of 4 PSUs is a matter of grave concern. This requires...
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ONGC harping on higher gas/oil price – untenable
The declining international prices of crude oil and gas [since last year] has brought huge relief to critical sectors like fertilizers, power, transport, households etc besides helping the government in reining in subsidies [fertilizers] in turn, helping fiscal consolidation and reducing losses of state electricity boards [SEBs]. However, international rating agencies [Moody & Standards and Poor] as well as domestic rating agencies viz., CRISIL feel that this will have deleterious impact on Oil and Natural Gas Corporation [ONGC] and Oil India Limited [OIL] – both central public sector undertakings [PSUs] which supply indigenous crude to oil refineries. This would be an overly simplistic way of looking at an otherwise complex situation on the ground. They argue that price paid to...
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Gas policy: Don’t drag courts into executive domain
The Union government has received a notice from the Supreme Court (SC) on a petition filed by Independent Gas-based Power Producers Association (IGPPA) seeking priority in allocation of gas produced from the Reliance Industries Limited (RIL) operated Krishna – Godavari (KG) basin. The IGPPA has contended that the gas allocated from the KG basin was not allotted to them on priority basis but was given to fertilizer units. The Federation of Farmers Associations (FFA) has also filed a PIL in SC backing the IGPPA demand. Earlier, in its order delivered in January, 2015, the Andhra Pradesh High Court (APHC) had refused to interfere with the government policy decision on the issue, saying the Centre has powers to fix priorities as...
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