[Answered] Government policies are creating a growth dilemma for domestic exploration and production of oil and gas. Elaborate.

In the wake of Russia’s invasion of Ukraine crude oil prices have skyrocketed, leaving many countries uncertain of their ability to meet demand in the medium to long term. Govt is encouraging huge investment to push demand but also imposing policies that deter domestic exploration and production.

Conditions of domestic exploration and production of oil and gas:

• The new guidelines have capped the trading margins on resale of gasand provided complex conditions on prioritising sales to households and transport sectors in the case of similar bids at e-auctions.
• It also requires a huge amount of paperworkthat gas producers must produce before officials. This policy change was announced without any warnings.
• This has made Reliance Industries and BP to postpone an auction in which it decided to sell 6 million cubic metres (mcm) a day of gas to Indian consumers at half the rates of international liquefied natural gas (LNG).
• The government has also come up with policies that have held back the development of domestic oil and gas resulting in lower domestic production. This makes India rely on gas imports with volatile global fuel rates.

Trend in consumption and import of natural gas:

• Overall consumption of natural gas rose 22 percentbetween 2015-16 but the growth rate of LNG imports surged 58 percent a day during this period.
• This led to imports growing at 53 per cent in 2019-20 from 41 percent in 2015-16because domestic production failed to catch up with demand.
• The dependency on overseas suppliers for cooking gas rose to 62 per cent from 47 per cent in 2017-18,after which the government decided to offer subsidised connections under PMUY.
• This import dependency will also affect India to reach the target of 15 percent natural gas in the energy mix by 2030 which currently stands at 6 per cent.
• Moreover, natural gas demand from the city gas distribution sector for domestic cooking fuel and transport is expected to grow 15-17 per cent over fiscal 2022-2027.
• This rapid growth in city gas use will make India more dependent on foreign fuel due to limited domestic production.

Policies such as interfering with fuel prices and arbitrarily capping margins of traders have discouraged foreign explorers from coming to India. India needs to adopt such policies which build a trust of foreign companies in India and make India more dependent on domestic production.