The Natural Gas Sector in India
6th Jun, 2022
- Natural Gas and its present scenario in India
- As a suitable transition option as sustainable fuel
- Challenges in future
- Misuses at extraction, processing and distribution stages
- What can be done to ensure a balance
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.
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.
- 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.