Natural Gas Economy

Natural Gas Economy

The government of India allowed complete marketing freedom for natural gas produced from non-regulated fields, including sale to affiliate companies. The Union Cabinet, headed by Prime Minister Narendra Modi, approved a standard e-bidding procedure to discover price of gas.

Key Points

The NDA government has initiated a process to scale up the production of natural gas in India. This is an encouraging step because the whole ecosystem of policies (production, infrastructure, and marketing of natural gas) has been made more transparent with a focus on the Ease of Doing Business.

The Government of India proposes a number of reforms to the natural gas sector. The aim of this reform is to encourage investments in the domestic production of natural gas and reduce import dependence. This is a part of the Government initiative to reduce the import dependence on high-value-added products by increasing domestic production.

Though the producers will continue to be barred from participating in such auctions, the affiliates would still be allowed to bid. The domestic gas production will have complete marketing and pricing freedom.

The reforms will also help India in shifting towards a gas based economy. The increased gas production consumption will help in the improvement of the environment. More employment opportunities will be there in the gas consuming sectors including MSMEs.

About Natural Gas

Natural gas is a fossil fuel mostly consisting of methane, which is the primary component of natural gas. It is found associated with other hydrocarbon reservoirs in coal beds and as methane clathrates.

Petroleum is another fossil fuel found in close association with and commonly interchanged with natural gas.

Most natural gases were created over time by two mechanisms: biogenic and thermogenic. Biogenic gas is created by methanogenic organisms in marshes, bogs, landfills, and shallow sediments.

In India, Jaisalmer, Krishna Godavari delta, Tripura and some areas offshore in Mumbai have natural gas resources.

The average global share of fossil fuels in the energy basket is 84% which is even more for India. While the world average share of natural gas in the energy basket is 23%, it is only 6% for India.

Associated Challenges with Natural gas

ONGC under APM: In India, 80% of natural gas produced by ONGC and Oil India Limited falls under Administered Price Mechanism (APM) which means the government controls its price. This is a major problem because with regulated oil prices and more new players entering into gas exploration, it could result in an over-supply situation in gas prices.

Reform related challenge: Resources of natural gas are limited in India; 55% of natural gas is imported in the form of Liquified Natural Gas (LNG) (which is even costlier). Natural gas deposits in India are found mostly along the continental shelf on the western coast.

The fertilizer Industry: The impediment is most of the gas coming from the nominated fields is going to fertilizers which is highly subsidised, hence the sector does not have its control over marketing and setting prices.

Limited Reserves: Resources of natural gas are limited in India; 55% of natural gas is imported in the form of Liquified Natural Gas (LNG) (which is even costlier).

Varied Prices: Natural gas is sold at varied prices- the gas under administered price regime at $1.79 per mBtu and other domestic gas in the range of $4.5 to $5.5 per mBtu. The prices are also higher for NGLs (Raw natural gas liquids) and CNG (Compressed natural gas). This has made it hard for the sellers to make profits while buyers want to pay as low a price as possible.