The Current State of Natural Gas in India; GoI’s Topsy Turvy Road Map

The Re-Beginnan | Vol.2 | Issue 23

Current Natural Gas Scenario in India

Natural Gas accounts for 6 per cent of the primary energy sources of our country. Out of the total natural gas consumption, 50 per cent is produced domestically and the balance is imported. In 2016, Hydrocarbon Exploration and Licensing Policy (HELP) was introduced by the Government in place of National Exploration and Licensing Policy (NELP) with an aim to determine market prices transparently through an exchange. This was also done with an intention to encourage domestic natural gas production and to bring domestic prices in line with international gas prices.

For the last two years, GoI had been planning to increase the share of natural gas in the total primary energy sources from 6 per cent to 15 per cent. This has led to the launch of India’s first natural gas exchange on 15th June, 2020.

The introduction of Natural Gas Exchange is a pivotal decision which can change the landscape of Natural Gas Sector in India. Though, the question arises whether it is too soon for India to have its own Natural Gas Exchange?

Issues Faced by the Natural Gas Sector in India

- India has multiple prices for domestic and imported gas due to some existing policies and formulae. Our domestic supply of gas is available at a higher price due to the oversupply of gas by the benchmark countries at a lower price.

- Prioritization of only certain sectors like fertilizers by the government has created a flawed gas allocation policy.

- It has been seen in the past that steel and power plants based on gas become financially unviable eventually.

- Large number of buyers and sellers are needed to trade on the exchange, since data suggests that the volume traded is too low. Though it is too early to make this assumption.

- New pipelines would be required to increase the share of gas in India’s primary energy mix. At present our pipeline network capacity and pipeline access are inadequate.

- Most importantly gas is outside the purview of GST.

The concerning issue is that there is a lack of depth in the Indian Natural Gas market i.e. in our country there are fewer suppliers and even lesser buyers of natural gas. Also, the production of natural gas is already low and all the above issues are unsolved. Until such issues are solved, the very purpose of a Natural Gas Exchange stands defeated.

The Way Forward…

Tough decisions have to be taken to increase the share of natural gas in the primary sources of energy. It is imperative to bring in strict reforms and have requisite infrastructure in place to ensure the proper functioning of the Natural Gas Exchange.