A request submitted by Reliance Industries Limited [RIL] to the government allowing it to deal in marketing and distribution of ‘subsidized’ LPG [liquefied petroleum gas] draws attention to a very crucial aspect of reforms that holds the key to supplying oil products at low cost on sustainable basis. This relates to breaking the monopoly of public sector undertakings [PSUs] in the downstream oil sector by letting players from private sector in. At present, infrastructure, storage, handling [and other logistics], marketing and distribution of petrol, diesel, LPG, kerosene etc is dominated by oil PSUs viz., Indian Oil Corporation Limited [IOCL], Bharat Petroleum Corporation Limited [BPCL] and Hindustan Petroleum Corporation Limited [HPCL]. 2 fundamental factors have contributed to their predominance. First, relates...
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Category: Oil & Gas
ONGC-GSPC tying knot – good for India’s energy security
There are reports of Oil and Natural Gas Corporation [ONGC] – a central public sector undertaking in the upstream oil & gas sector – picking up a majority stake in gas assets of Gujarat State Petroleum Corporation [GSPC] – an undertaking of Gujarat government – in Krishna-Godavari [KG] basin near coast of Andhra Pradesh. GSPC was awarded the high profile KG-OSN-2001/3 field in the second round of the new exploration and licensing policy [NELP]. Critics are branding this as an attempt by Modi – government at the centre [it was Narendra Modi who as then, chief minister, Gujarat in 2005 had announced discovery in this area with in-place reserves of over 20 trillion cubic ft] to bail out GSPC which...
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WHY THIS PRICE RISE IN NATURAL GAS?
A return to global market-based pricing of gas will hurt fertilisers and power. The Government must, therefore, reconsider its decision to raise the price of natural gas In October 2014, the Modi Government had issued guidelines to fix the price of all domestic gas based on weighted average of gas prices prevailing in four international locations. This led to consternation among producers who say that, at existing administered price ($3.82 per million British thermal unit from October 1, 2015, which will fall to $3.15 in April), production from difficult fields won’t be viable. The Government then promised to consider a ‘premium’ price for deep water blocs, ultra-deep water blocs, which present challenging geological environment. In May 2015, the Union Ministry...
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Gas pricing – has Modi succumbed to pressure tactics?
On March 10, 2016, the cabinet committee on economic affairs [CCEA] approved a policy to incentivize gas production from deep water, ultra-deep water and high-pressure-high-temperature areas. For such areas, which are yet to commence commercial production as on January 1, 2016 and for all future discoveries in such areas, the producers will be allowed marketing freedom including pricing freedom. This would be subject to a ceiling price based landed price of alternative fuels. The ceiling price will be determined as the lowest of the (i) landed price of imported fuel oil [FO]; (ii) landed price of imported LNG [liquefied natural gas] and (iii) weighted average imported landed price of substitute fuels viz., coal, FO and naphtha with weights of 30%,...
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Why a price stimulus for gas?
A return to global markets-based pricing will hurt the fertiliser and power sectors In his Budget speech, finance minister Arun Jaitley lamented the situation of “rising demand, near-stagnation in production and consequent rapid increase in import” in the case of gas. He argued that there was need to incentivise 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”. Finance ministry U-turn The concern expressed in the speech is not new. The government was mindful of...
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Do gas producers need Jaitely’s stimulus?
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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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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Distorted gas allocation to fertiliser sector
Fertiliser needs gas on priority and at reasonable rates, more so non-urea fertiliser producers The Modi government is doing everything within its executive power to ensure that ‘Make in India’ succeeds. However, there is one sector, fertilisers, which has not got the attention it deserves. Even after two-and-a-half decades of reforms, this industry not only remains highly regulated with intrusive controls on production, distribution, sales and pricing, it is also excessively micromanaged. Controls on selling price at levels unrelated to cost, and subsidy accounting for an overwhelming share of manufacturers’ realisation from sale have seriously hampered the sector’s ability to survive. No fresh investment has been made in this industry for close to two decades. Discriminatory policy Even as the...
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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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LPG subsidy cut – too little, too late
The government has announced that from January 1, 2016, all those earning more than Rs 1 million per annum will forgo subsidy on LPG [liquefied petroleum gas] on self-declaration basis. This appears to be a grandiose announcement but in terms of reforms, it is a typical case of “too little and too late”. At present, there are a total of 163 million registered LPG customers. Of these, 147 million are availing of subsidy. The difference 16 million is accounted for by about 10 million [bogus/fictitious persons] who were eliminated following government’s drive to credit subsidy directly in to the bank account of customer under PAHAL [Pratyaksha Hastaantarit Laabh] and around 6 million who voluntarily surrendered their subsidy entitlement under Prime...
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