India’s exuberance about reviving the Iran-Pakistan-India (IPI) gas pipeline may not be practical, given that the global gas market has changed substantially since this pipeline was conceived some 15 years ago.
Analysts are doubtful about the pipeline’s commercial viability because most stakeholders have overemphasised the politics of the pipeline. “It is the economics of the pipeline which has been the biggest barrier in my opinion, and that has not changed. In fact, it has worsened,” says Lydia Powell, senior energy analyst with the Observer Research Foundation. The prospects of the global gas market do not look positive, especially due to depressed prices, the reason why Reliance is selling its US-based shale gas assets. Gas prices are derived from crude prices, which have fallen by 50% in last year alone. Therefore, it might make better economic sense to import LNG than investing in a long term project like the pipeline.
Apart from depressed gas prices, market conditions, especially in India, have deteriorated. There is no pricing certainty on gas, and markets do not like the currently unpredictable pricing policies. Many feel that even after the change in government at the Centre, uncertainty still prevails. Even Indian gas importers and producers are not really excited about the domestic gas market. Pipeline projects require long-term certainty on gas prices. Quote On
“Why should a long-term and highly capital intensive project be exciting? None of the domestic players are excited,” observes Powell. There might be some discussion of reviving the pipeline, but there are doubts that any serious investors would back it, in view of the pipeline’s ever-increasing cost, depressed gas prices and the prevailing uncertainty over gas pricing in India.
Moreover the quantum of gas usage has not received any priority in policy documents. A switch to gas or some policy push for more gas usage in the country would give India a sense of gas volumes required to meet demand. Such estimation of volumes is required to create a viable gas market in India. Experts say that if such a policy push is not in place, the pipeline will not become attractive. The present government is relying more on renewable energy, but gas can achieve carbon emission savings much more easily and quickly. The government is equally relying on coal-based electricity, as that is much cheaper, even if more polluting, than gas-generated power.