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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Category: Pricing Policies & Subsidies
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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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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Oil PSUs – ‘haemorrhage’ stops
For several decades, central public sector undertakings [CPSUs] in the downstream oil sector viz., Indian Oil Corporation Limited [IOCL], Bharat Petroleum Corporation Limited [BPCL] and Hindustan Petroleum Corporation Limited [HPCL] have enjoyed a virtual monopoly position in refining/production and marketing of petroleum products. Although, in the last around 2 decades, private sector players such as Reliance Industries Limited [RIL] and Essar Oil limited [EOL] have also emerged on the scene setting up refining capacity on a large-scale, the position of oil PSUs in the domestic market remains unchallenged. This was primarily because of a discriminatory policy and regulatory environment that not only erected entry barriers in marketing but also rendered their operations unviable. In this backdrop, while one would have...
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