After windfall gains comes the price range. The government-appointed Kirit Parikh panel has recommended capping the price of natural gas produced in the country by 2027, when it expects fewer supply constraints and greater price stability. Given that high gas prices hurt India’s fertilizer, power and city gas sectors, it may seem reasonable to limit them; However, the bigger task before the government will be securing supplies at a time when gas-starved Europe sucks in global supplies to meet its winter demand as Russia exhausts supplies.
1. Ceiling after bounce
In 2014, the government linked local gas prices to global benchmarks such as Henry Hub, Alberta Gas, NBP and Russian Gas to encourage domestic production. As the Ukraine war disrupted supplies and pushed up global prices, the government raised the price of gas from old gas fields to $8.57 mmBtu in October, tripling in a year, giving gas producers a windfall. Those days seem to be over – the Kirit Parikh panel has suggested a minimum price of $4mmBtu and a ceiling of $6.5mmBtu to recover the cost of production for Oil India and Oil and Natural Gas Corporation (ONGC) That may be increased by 0.5 MMBTU every year till 2027. It recommended January 1, 2027 as the date for ending the administered price regime of natural gas.
You might also like
Carlyle, Fairfax, DBS may bid for IDBI Bank
Big salaries for IITians come with conditions attached
Bad times may be over for Bajaj Auto
How to get plum job in asset management firm
Essentially, a price range of $6.5 means a reduction from the current $8.57 with incremental increases over the next few years. Free pricing should wait until the crisis is over and prices stabilise, although the committee wants India to commit to market reforms over the medium to long term. This is similar to the approach adopted for decontrolling petrol and diesel prices in 2010 and 2014, when prices were freed when crude oil prices were relatively low. Also, diesel prices were initially raised by 50 paise every month in 2013 before full deregulation in 2014. This incremental approach is also being suggested to control gas prices.
2. Supply Interruption
The recommendations come against the backdrop of massive disruption to global natural gas supplies following the Russia-Ukraine war. As Russia cuts off gas supplies to European countries, they are left looking for alternative sites to meet their needs, especially for their power sector. Competition for gas will make things difficult for India, which meets about half of its supply through imports. Europe’s aggressive bids for global natural gas will impact India in two ways. Indian companies may not respond to tenders as European countries supply at higher prices. Also, unlike oil, Russia has proved to be unreliable when it comes to supplying gas to India. GAIL India has a 20-year agreement with Gazprom Marketing and Singapore (GMTS), but the Russian company relinquished its ownership following Western sanctions. The entity subsequently failed to deliver the LNG cargo to GAIL. Indian companies are trying to buy in the spot market, but European countries are ahead of others. A large part of India’s gas imports – almost half – come from the spot market. It has now started affecting supply across industries, from fertilizers to the power sector. India has long-term contracts with West Asian countries such as Qatar and Saudi Arabia, but there will be competition for future contracts from European countries.
In fact, S&P Global has estimated that India’s natural gas imports have declined by more than 10% till August this year, indicating the impact of global supply shortfall and rising prices. And this may be the trend for some time. S&P Global said, “Buyers in the country, which meets about half of its annual LNG demand through imports, have not honored most of their buy-and-hold tenders for spot cargoes this year, nor did they in July.” Have made outright purchases since.”
3. Loss to India
The fertilizer industry accounts for about a third of India’s natural gas consumption, followed by city gas projects as fuel for cooking and vehicles (21%). This is followed by the power sector consumption (14%) and the refinery and petrochemical sector (11%). All of them have faced the impact of rising gas prices. Between April and August, total fertilizer subsidy increased by 32% to approx. 1.21 trillion as compared to the same period last year. CNG and PNG prices have also increased by 20% to 40% this year. The reduction in gas prices will bring down the prices of CNG and PNG and provide relief to the common man. The burden of fertilizer subsidy of the government will also be reduced.
The challenge for the government will be to ensure an adequate supply of natural gas in the near- to medium-term. GAIL caters to the needs of the city gas companies at a cost that is a mix of domestic and imported gas. This blended rate varies from month to month and may be higher than the prices set by the government for domestic gas producers.
Elsewhere in Mint
Vivek Kaul explains in Opinion what connects Girl education with our per capita income, Rahul Maithon says that Web 3.0 will impose you are on top of the internet, Ariane Cohen explains how to increase revenue with a 4-day work week. tells a long story mystery of the missing billions in business of India.
catch ’em all business News, market news, today’s fresh news events and breaking news Update on Live Mint. download mint news app To get daily market updates.