The Natural Gas Sector in India

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.

• 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.

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.