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Source: The post is based on the article “Proposed changes in gas pricing fail to adequately address the needs of the consumer” published in “The Indian Express” on 22nd April 2023.
Syllabus: GS3- Infrastructure: Energy
Relevance: Issues related to the gas pricing.
News: The government of India has modified the October 2014 pricing mechanism for domestically produced natural gas. 8-10 per cent price reductions announced for CNG and PNG respectively by the major CGD players.
What are the issues with the energy sector in India?
India’s per capita commercial energy consumption has remained around a third of the global average. It is at par with sub-Saharan levels. India cannot achieve geopolitical standing in a multi-polar world, without addressing her energy poverty.
India accounts for just under 6% of global commercial energy consumption. It consumes under 23% of the commercial energy consumed by China in both absolute and per capita terms.
India’s share of global gas consumption is just 1.5%. Gas accounts for only 6.3% of India’s commercial energy basket.
What are the issues with the revised gas pricing mechanism for domestically produced gas?
Deny benefits to Indian consumers: The revision comes at a time when Natural Gas and LNG prices have fallen by 70%. The current Henry Hub price for natural gas is just above 2$/MMBTU (million British Thermal Units). There is a surplus of Russian natural gas.
Spot LNG is trading well below $13/MMBTU. The proposed changes deny Indian consumers the benefit of these falling prices.
No reason for differential treatment of KG Basin: The changes proposed do not impact the pricing of gas from the KG Basin fields. For the KG Basin fields, the price is capped at the full energy equivalent of alternate imported fuels. The logic behind this differential treatment and the magnitude of the difference imposed remains unclear.
Not universally applicable: The floor price of $4/MMBTU and the ceiling price of $6.5/MMBTU for domestic natural gas is applicable only to the gas produced from the nominated fields of ONGC/OIL. It is not applicable to all-natural gas fields covered by government-administered prices.
Again, the basis for choosing the floor of $4 and the ceiling of $6.5 and applying it selectively to only certain public sector natural gas fields remains unclear.
Other issues: The nominated fields of ONGC/OIL that are subject to a floor price and a ceiling price will be eligible for an arbitrary 20% premium for natural gas produced from “new wells”. The reasoning for these arbitrary provisions, applied selectively to certain fields, also remains unclear.
What will be the impacts of the new gas pricing mechanism?
The different formulations for pricing the same commodity are further complicated by the proposed new and unprecedented variations. This is prone to gaming and creates a non-level playing field.
The high well-head prices in India for domestic natural gas ensure a continued high price for LNG exports to India.
Note: The well-head price is the price without transportation costs charged by the producer for petroleum or natural gas.
