Context

The increment in the price of domestic gas in India and need to increase in energy security and a possible increase in consumption is the issue for India a gas-based economy.

Background

• Recently, the Government of India has allowed complete marketing freedom for natural gas produced from non-regulated fields.
• The Union Cabinet has approved a standard e-bidding procedure to discover the price of gas.
• This was to bring uniformity in the bidding processacross the various contractual regimes and policies to avoid ambiguity and contribute towards ease of doing business.

What is Natural Gas?

• Natural gas is found with petroleum deposits and is released when crude oil is brought to the surface. It can be used as a domestic and industrial fuel.
• In India, Jaisalmer, Krishna Godavari delta, Tripura and some areas offshore in Mumbai have natural gas resources.

Natural gas: A Suitable Transition Option

• Versatility & Abundance: Natural gas has multiple uses and it is the “greenest” of all fossil fuels. Also, it is abundantly available in and within the Indian subcontinent.
• Easy Transition Energy Option: Natural gas is a feasible prospect because it will not generate the headwinds due to shutting down of coal mines.
  • Further, it will not require industries to invest heavily in retrofitting their systems.
• Environmental aspect: Moreover, it will allow the government to meet its objective of providing secure and affordable energy to everyone without degrading the environment.
• Excess Usage of Fossil Fuels: The average global share of fossil fuels in the energy basket is 84% which is even more for India.

Oil and Natural Gas Corporation (ONGC) Oil and Natural Gas Corporation (ONGC) is a Maharatna Public Sector Undertaking (PSU)of the Government of India. It was set up in 1995 and is under the Ministry of Petroleum and Natural Gas. It is the largest crude oil and natural gas company in India, contributing around 70% to Indian domestic production. The ONGC is the highest profit-making corporation in India (USD 5 billion). It also the largest Indian company in oil exploration

Challenges Associated With the Natural Gas Sector

• Pricing Distortions: The pricing of natural gas is based on multiple price formulae.
  • There is differential pricing for gas produced from domestic fields by the public sector companies and private companies and for production from deep waters offshore under high temperature etc.
  • This creates problems in coming up with competitive pricing.
• Regressive Taxation System: It is a cascading structure so that the tax rates increase as the gas flows from one zone to another.
  • This means that customers located at a distance from the source of gas pay a higher price than those closer to the source.
  • Moreover, gas is not under GST.
• Conflict-of-interest Situation: The Gas Authority of India Ltd (GAIL) is currently engaged in the production, transportation and marketing of gas.
  • This allows GAIL to leverage its ownership of the bulk of the gas pipelines to deny its competitors access to the market.
• Centre-States Issue: Completion of a national pipeline grid gets affected due to clashes between Centre and state over issues like land acquisition, pipeline routing; and royalty payments.
  • Centre-state differences have also delayed the construction of import facilities and the creation of gas markets.

Way forward

• Deregulation of Pricing: A key aspect of ensuring market reforms to boost gas economy, would be deregulation of pricing for domestically produced gas.
  • It will allow freedom to price and market domestic gas and in turn boost domestic production, making it more viable for players to invest.
  • Moreover, market-determined and affordable pricing would also boost industrial growth and economic competitiveness.
• Boosting Infrastructure: These markets have greatly benefited from factors such as open access to infrastructure, system operator, unbundled marketing and transport functions and market-friendly transport access and tariff besides strong pipeline infrastructure.
  • Also, the institutional mechanism should be created to enable better coordination between the central and state governments.
• Freeing Gas Markets: Through ensuring price benchmarks, it will drive competition across the value chain and stimulate investments in exploration and production along with downstream infrastructure.
  • Moreover, factors such as inclusion under GST and an overarching regulatory framework will also play an important role in boosting the overall gas markets.