[Editorial Analysis] Natural Gas Economy

Mains Paper 3: Economy
Prelims level: Natural gas
Mains level: Potential for Natural gas in India

Context:

• The government recently allowed complete marketing freedom for natural gas produced from non-regulated fields.

• The Union Cabinet, headed by Prime Minister Narendra Modi, approved a standard e-bidding procedure to discover the price of gas. While producers will continue to be barred from participating in such auctions, affiliates would be allowed to bid.

• However, the existing pricing mechanism for gas produced by state-owned ONGC and Oil India Ltd from fields given to them on a nomination basis would continue.

• The marketing reform would help add 40 metric million standard cubic metres per day (mmscmd) of production to the existing output of 84 mmscmd.

Why this initiative is needed?

• Fossil Fuel comprises around 90% of India’s energy basket. Gas is least polluting of all fossil fuels.

• In India the present share of gas in fuel basket is about 6%. It is significantly lower than World share of 23%. So, there is a tremendous scope to increase our consumption of gas while reducing our dependence on coal and oil.

• Although Price and cost of production of gases from fields given to PSUs before 1999 are low, but fields given through initiatives like NELP, HELP and Open Area Acreage etc. are difficult fields (e.g deep sea) which increase the cost of production.

• Gas price in country is quite low and it is not sustainable to produce gas from these fields at the current price.

• 50% of gas is imported in form of LNG. LNG is more costly as it involves 3 processes i.e. liquefaction, special ships to carry it, gasification at receiving end. Hence $2 btu at producer end becomes $6btu at receiver end. 80% of Natural gas produced in India falls within Administrative Price Mechanism.

Potential for Natural gas in India:

• No Significant gas discovery in India since D6 in Krishna Godavari Basin in 2010.

• According to geological data a bulk of future gas prospects in India are in deep and ultra deep water whose exploration becomes a challenging task in terms of technologies and economics. In Initiatives like Sagar Samriddhi by ONGC large amount of money has been pumped with ultimately no result.

• If India wants to go gas economy its dependence of import of gas will go up. So this raises a potential question if India should go into gas economy or opt for other form of energy.

Does this initiative take us to open market mechanism as far as natural gas is concerned?

Positives:

• Marketing and pricing freedom has been granted to the new players in the field of gas production.

• Freedom of choice has been given in the form that there will be multiple e- bidding platforms where producer can choose which platform to follow and determine the price at which it wants to sell its produce. Role of Regulators are clearly assigned.

Key Issues:

• This reform impact only 20% of gas production. (Rest 80% most of which are old fields are within APM). This can act as a disincentive to existing production as new player may be able to explore sustainable prices where others could not.

Nominated fields:

• Nominated fields are those for which no payment was given to govt. when these fields were allotted. They were allotted a long time back.

• Most of them are now 25-30 years old and have become depleted. They need rejuvenation and investment of same kind as new fields do.

• Gases from nominated fields fall under Administrative Price Mechanism. Most of the gases from these nominated fields go to fertilizer sector and fertilizer sector is heavily subsidized.

Way ahead:

• Administrative price mechanism needs to be revisited and at the same time PSU like ONGC, GAIL etc should be given more freedom.

• Gas is a part of integrated energy economy. To bring gas sector reforms, other sectors need to be reformed too. E.g Govt. should opt for DBT of fertilizer subsidy into farmer’s bank account instead of directly subsidizing fertilizers companies. This will make easier for govt. to allow nominated field too to have same marketing freedom as other fields within new players have.

• As globally gas price is low, India should enter into contracts to import more gas or use it as hedge in case gas prices rises in future.

• Encourage more FDI in oil and gas exploration and production because many of the new required technologies are patented by selected big giants such as British Petroleum and Exxon Mobil.

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Prelims Questions:

Q.1) With reference to the Border Security Force, consider the following statements:

1. It was raised in 1972.

2. It is a Union Government Agency under the administrative control of Ministry of Home Affairs.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: B

Mains Questions:

Q.1) Describe the need of the allowed complete marketing freedom for natural gas produced from non-regulated fields. Does this initiative take us to open market mechanism as far as natural gas is concerned?

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