LNG overtakes domestic gas as pricing controls weigh on local producers

23 Sept. 2020-NEW DELHI: LNG imports have shot past domestic supplies for the first time in India, creating ground for decontrolling the market even as local producers feel hamstrung by below-cost prices dictated by government formula.

Domestic gas met 47 per cent of demand in 2019-20, while a spurt in import of cheap cargos pushed up the share of LNG to 53 per cent from 31 per cent in 2017. Market is projected to be equally divided between between LNG and domestic gas in the next two years.

“Natural gas is truly becoming a global commodity. For the first time, LNG has ‘outcompeted’ piped supplies in Europe. Gas-on-gas competition is building up globally. Even in India, LNG’s share is more than 50 per cent. Prices are also down. Time is right for decontrol to boost domestic production and promote domestic gas business as upstream is bleeding due to unremunerative prices,” ONGC director (finance) Subhash Kumar said.

Kumar should know, since he has to balance the books as the pricing formula renders ONGC’s multibillion-dollar projects unviable. RIL-BP and OIL too face the same issue. The dwindling economics of existing players is bound to hit efforts to attract upstream investments, industry watchers say.

Yet, Kumar is not giving up on gas. “Consumption in India will rise at a logarithmic scale on pipeline capacity expansion. It is the future fuel and provides a vital bridge to ‘net-zero’ scenario. The market just needs reforms,” he said. Gas occupies 6 per cent of India’s energy mix and the government wants to raise it to 15 per cent by 2030.

Domestic gas price has been falling for a year and is expected to slip below $2 per unit in the latest six-monthly review on October 1 against $4.5 for spot LNG projected by a Reuters report. LNG entails additional costs on regasification and transportation.

Over 80 per cent of domestic gas comes from fields that do not have pricing or marketing freedom undeer the 2014 gas pricing policy. Gas from technologically/geologically difficult fields have pricing freedom but with a ceiling. A majority of new discoveries, including from CBM blocks, however, get both marketing and pricing freedom. Thus, a majority of domestic production fetches an unremunerative price, over 50 per cent of supply is imported at a higher cost.

“Every unit of gas not produced from domestic sources has to be substituted by imported LNG at a considerably higher price, resulting in significant loss to the country. On the other hand, every additional unit of natural gas produced domestically not only provides additional revenue to the government in terms of various taxes and duties, but it also results in the economically positive multiplier effect of capex spending and job creation within the country,” a senior executive of a private oil company told TOI.