Natural Gas

The Effect of New Gas Pricing Guidelines in India

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Where is the Money?

The investment in exploration and development plan consistently going down from $6 billion in 2007-08 to around $1.8 billion in 2011-12. At the same time, Indian Companies have already invested $27 billio nin the E&P Sector abroad and the remaining $10 billion is in pipeline.

It is important to note that every $1 per MMBTU increase in the gas price would result in an additional burden of approximately $1 billion. However, half of it i.e., around $500 million will come back to the Government in the form of royalty, profit, petroleum taxes and dividend. This additional income can take care of the additional subsidy burden of fertilizer and LPG, if the Government decides to absorb the burden.

Gas Based Power Plants on Hold

With regard to the Power Sector, around 16000 MW Capacity is stranded for want of gas supply. Apart from the high import price of the gas, the import infrastructure is also insufficient to meet the requirement and therefore, if domestic gas supply is not restored to the Power Sector, the huge investment made on the gas based Power Plant will go waste.

With regard to alleged windfall gain to the private operators, more than 65 per cent of the domestic gas production is by the public sector companies and the remaining 35 per cent by the private or joint venture companies between public sector and the private sector. As regard to RIL, presently it is producing only 10 per cent of the gas production in the country. With the new price, it is expected that their production from KG D-6 will increase with the additional investment. However, the gas flow is not likely to start before 2017–18 and therefore, allegation of any windfall gain is misconceived.

Gas Prce Revision to Trigger Investments in India, Analysts Say

In view of the above, it can be concluded that revision of the gas price is the most economically prudent decision taken by the Government which is likely to trigger additional investment, additional production, reduction of import dependence, and therefore, better fiscal balance. Increased availability of domestic gas is also likely to result in affordable production by the consuming sector such as Power and Fertilizer. In any case, as indicated by the Finance Minister, the Government has revised the output price of the domestically produced gas and its impact on the increased input cost for certain sectors would be looked into by the Government separately.