Cheaper imported gas, LNG, which is knocking at the Indian doors, is indeed a boon for the energy deficient country but experts believe that it would hugely dis-incentivise the needed investment in India’s own hydrocarbon sector especially by its private players. Qatar, a major supplier of LNG to India, has agreed to a new pricing formula which has almost halved the imported price of gas to India to about $6/MMBTU. Such an outcome is “a sign of the changing global commodity market and the related shift of power to the gas consumers,” says Angel Broking. Experts believe that India’s private producers were largely unprepared for such an outcome. “Private gas-producers made huge investments in India’s gas fields expecting that the global gas market would only move in one direction i.e upward,” says a Delhi-based hydrocarbon expert.
Lower price of gas, however, is a blessing in disguise for the Central government which would now be relieved of the perennial pressure from private lobbies demanding market-linked prices for domestic gas. “With spot market prices now between $5-$7/unit which is the price that the government has already been giving to the private players, the demand for market-linked gas-prices has been met even though it is not sufficiently attractive to the private players,” added the hydrocarbon expert.
India’s private gas operators have been demanding a higher price of gas — upward of $10.MMBTU — to make their exploration and production efforts viable. Since such an expectation has now fallen flat, they have no option now but to accept the current reality of the over-supplied global gas market. Accepting such a reality, analysts say, would discourage investments in India’s hydrocarbon sector. Since much of the Indian gas lies in ultra-deep and risky offshore terrains, the current market price would not remunerate the exploration and production risks that gas operators undertake. Experts feel that the government might still offer preferential prices to compensate operators for their risks. Augmenting domestic reserves, they say, is indeed a necessity for the nation’s energy security.
India consumes about 50 BCM of gas, a third of which is imported, mostly from Qatar. Analysts say that this renegotiation of long-term gas contracts is not unique to India as the oversupply of gas in the global gas market is making all such contracts being re-negotiated globally. The slowdown in China is expected to keep the gas prices depressed for some years. “Global LNG output is expected to rise two-and-a half times to 500 billion cubic meters by 2020 as supplies increase, mainly from the United States and Australia, putting further pressure on prices,” says Angel Broking.
Green lobbyists however feel that natural gas provides a good opportunity to India to reduce its carbon emission at a very economically viable rate. They even espouse shifting some investment away from renewable energy towards natural gas as such a shift can substantially reduce carbon emission like it has done in the US. But depressed gas prices might also slow down the construction of the TAPI gas pipeline as gas prices are a big factor in any trans-border pipeline.