• Natural Gas should be subject to GST, says GAIL Chairman

    The government would need to undertake major policy changes if the country is to meet its objective of more than doubling natural gas’s share in the energy mix to 15% by 2030, according to GAIL chairman Sandeep Kumar Gupta.

    Sanjeev Choudhary, the former finance chief of Indian Oil Corporation who will take over as CEO of India’s largest gas marketer and transporter in 2022, said in an interview that the government should mandate the use of natural gas in refineries and steel production, as well as make emissions a factor in the merit order for electricity dispatch, to help gas-based power compete with coal-based supply.

    He also stated that natural gas should be subject to the GST regime, the production-linked incentive (PLI) should be extended to LNG-powered vehicles, and the GST on CNG-powered vehicles should be reduced from 28% to 5%, on par with electric vehicles (EVs).

    The global gas market is well supplied, and there are no concerns regarding LNG prices. The arbitrary production limits imposed by OPEC+ have an impact on LNG prices, which are related to crude oil. The situation can be corrected if the production group reconsiders its judgment and takes proper action.

    Global LNG export capacity is expected to grow dramatically over the next few years, putting pressure on pricing.

    Is domestic gas demand rising?

    There is no significant increase, particularly in the power or fertiliser sectors. However, there has been an increase in city gas prices. Domestic demand would not increase significantly unless refineries, steel, and power plants made significant shifts to gas.

    What can be done to increase gas consumption?

    Some policy changes would be required if we are to attain our target of 15% gas in the domestic energy mix by 2030. Gas must be subject to GST, which will solve the issue of stranded input credit claims. The lack of input credit makes gas more expensive than competing liquid fuels. The gas should attract no more than 5% GST.

    The 14% central excise duty on compression should be removed because it is not a manufacturing activity. If we get tax relief, we can lower CNG pricing or offer incentives to drivers who switch to CNG.

    Approximately 80% of our gas-based power facilities are inactive because they cannot make it to the merit order. When a government has established a goal to increase the amount of gas in its energy mix and there is a climate challenge, the merit order should consider not just the cost of production but also the emissions. When emissions are taken into account, gas-based power will begin to displace other sources.

    To protect the environment, the government will need to compel the use of natural gas in refineries, steel plants, and other businesses. It should be mandatory for industries to adopt lower-emitting natural gas for a portion of their fuel needs. Refiners have a great capability to use natural gas, but their fuel decisions are now dictated solely by economic considerations.

    Are you concerned that EVs will grab part of your markets?

    The Centre is strongly supportive of electric vehicles. States are likewise at full throttle. This will reduce the need for CNG in such locations. LNG and CNG vehicles should be eligible for incentives similar to those provided to EVs. PLI for LNG cars should be provided. GST on CNG vehicles is currently 28%, but GST on EVs is only 5%. India’s energy grid is essentially grey today, hence gas should be supported as a transition fuel.

    What are your wider goals for GAIL?

    Our objective is to transform GAIL into a fully integrated gas value chain corporation with worldwide significance.

    We are seeking additional approval for pipes to complete the national gas grid. We also intend to add large gas or ethane-based petrochemical operations. Petrochemicals have enormous potential in India because we import a lot of them. However, the margins are not there. As a result, we would want tariff protection and budgetary incentives from the governments to invest in new facilities.

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