India fast tracks gas exchange proposal

New Delhi: The Ministry of Petroleum and Natural Gas is set to approach the Cabinet to set up a gas exchange in an effort to move towards market-driven pricing and pool domestic natural gas with imported liquefied natural gas (LNG), Petroleum Minister Dharmendra Pradhan said on Tuesday.

The ministry has set up a think tank on India’s hydrocarbon sector. Its members include international energy expert Daniel Yergin, economist Vijay Kelkar, Dev Sanyal of British Petroleum, ICICI Bank Chief Executive Officer Chanda Kochhar, Schlumberger’s Ashok Belani, New Development Bank (of BRICS) chief K V Kamath, and former Cairn India chief Rahul Dhir. 

The think tank would come up with suggestions on bringing down India’s energy imports by 10 per cent, setting up the gas infrastructure, and foreign direct investment and technology for the oil and gas sector.

According to the International Energy Agency (IEA), natural gas demand in India to grow, on average, 6 per cent per year to around 80 billion cubic metres (bcm) by 2022.

The agency is in favour of a market-driven gas-pricing system to boost India’s domestic production. 
 
“We expect energy demand to grow even though China is going to be the major market. But to improve domestic production, India should opt for a market-based pricing system, giving more freedom to the producers,” Keisuke Sadamori, director, energy markets and securities, IEA, told Business Standard. 
 
The ministry increased the price of natural gas by 17 per cent to $2.89 per million British thermal units (mmBtu) for six months starting October 1. 

Even after setting up the gas exchange, the existing pricing formula would remain. But the idea is to move towards a transparent market-driven pricing mechanism. 

“The gas exchange is in the interests of the Indian consumer. Only if the pricing mechanism is attractive will the market grow. We are pooling gas for the fertiliser sector. A similar arrangement can be made for other sectors,” Pradhan added. 

Sadamori said while the overall global gas demand was expected to grow by 1.6 per cent per year from now till 2022, the rate of growth in India will be more than 6 per cent per annum. “From the current 55 bcm, we expect demand in India to grow to 80 bcm by 2022,” he added. 

When asked about the format of the gas exchange, Yergin said, “It will be a hub which will make the Indian gas market more competitive.”

However, the price is applicable for gas from blocks that were auctioned after 1999. The price of gas from deep water, ultra-deepwater, high-pressure and high-temperature blocks also increased by 13 per cent to $6.3 per mmBtu till March 31 next year. 

“If you look globally, the demand from power is stable while the industry sector is growing. But in India we are expecting a rise in demand mainly from the power and fertiliser sectors,” he added. 

When asked about how realistic Prime Minister Narendra Modi’s roadmap to cut oil imports by increasing domestic production was, Sadamori said, “India has a very huge potential for domestic oil and gas production. If India is successful in increasing production, demand growth will surpass the rate of increase in domestic production.”

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.