• Government planning for a wave of reforms in the natural gas sector

    The government is planning to introduce a wave of reforms in the natural gas sector, aimed at the local discovery of prices and development of a national gas market.

    The oil ministry has prepared a Cabinet note that proposes snapping the power sector’s priority access to cheap local gas, setting up a gas trading platform to encourage market-discovery of prices, and hive off GAIL’s transportation unit to enhance third party access to its pipelines.
    At present, India produces just half of the gas it consumes, a government set formula determines rates for most local gas, and the absence of market price deters producers from investing in the country. By allowing marketing freedom to gas from new discoveries, the government has tried to address much of the investors’ concerns in recent years but officials think developing a free market was essential to sustained investment in the sector.

    Which is why the government wants to build a gas trading platform that can facilitate the market discovery of prices. A gas exchange will enhance trade transparency, boost consumer confidence, and increase market opportunities for suppliers, officials said.

    Government planning for a wave of reforms in the natural gas sector
    “But an exchange can work only if we have enough domestic gas to trade. Most of the gas is already allocated to priority consumers. We need to free up some gas,” an official said. Official guidelines bind producers to supply their output to certain consumers, mostly at rates based on a government-set formula.

    The oil ministry has, therefore, proposed to knock off the power sector, the biggest consumer of local gas, from the so-called priority list. It has proposed limiting the allocation to city gas (CNG vehicles and households) and the fertiliser sector, an official said.

    The power sector consumes about 31% of the local gas while the fertiliser and city gas sectors consume 24% and 22%, respectively.

    The proposal is likely to meet fierce opposition by the power ministry and generators. India has 25,000 MW of gas-based plants in total generation capacity of 356,000 MW.

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