Rs 7500 crore subsidy on gas for power plants NDA government has allocated Rs. 7500 crore to help the stranded gas power companies over two years (2015-17) to subsidise the use of imported LNG. It was certainly necessary to generate more electricity to meet the rising demand for power and provide succour to power-starved states and industry. However our bureaucrats lack the expertise and information to decide on pricing gas or providing subsidies. If it was a blunder on the part of businessmen to have invested on gas power plants without providing for multi-fuels, why should they be helped? If only the government had liberalised the gas market earlier, such a subsidy might not have been needed. All over the world there have been several examples of such spectacularly failed projects when the gas market was controlled. The US, which preaches free market to the rest of the world, is the poster child to show what happens to an economy when gas price was controlled. Only when the gas market was liberalised after 1978, it led to the booming gas sector that helped the economy. It eventually resulted in a shale revolution which has brought the US close to energy independence. Partly it is also responsible for the present fall in crude oil price. Energy outlook...
According to India’s Energy Outlook as part of IEA’s WEO 2015 report, India’s gas demand is expected to go up to about 125 CBM by 2030 from the current level of 50 BCM - still 7 per cent of overall total energy demand. Gas production is expected to be about 55 BCM (with 15 BCM from Coal Bed Methane and 0.2 BCM of shale gas). Thus IEA is pessimistic about India’s potential to increase its gas production from the current level. However, if India has a progressive gas exploration policy, she can produce far more. In any case India should have no problem in meeting its import needs. More than likely it is LNG which is likely to meet the import needs and not the pipelines, despite serious attempts made to import gas from Iran and Turkmenistan. In 2015 total world LNG trade was 248 million tonnes and India’s imports were 18.9 million tonnes. By 2030, global LNG export capacity is likely to increase to 338 million tonnes based on the LNG projects under construction. In addition about 755 million tonnes of additional LNG projects are proposed. Even if 25 per cent of these projects fructify, there will be enough LNG to meet the likely demand. Thus India should have no difficulty in importing the needed LNG. It is not prudent to assume that India will be able to import at low prices like today. More than likely it will be tied to crude oil price since most of the end-use where gas can be used competes with oil products. If India wants to depend on LNG imports to meet its energy requirements, it should develop a sound strategic plan by taking into consideration all the factors affecting gas sector. Graph-2 shows the increasing amount of LPG imported to meet the increasing cooking fuel requirements of households. Even now only 75 per cent urban households and less than 15 per cent household in rural areas have access to LPG. With increasing penetration of LPG as cooking fuel, LPG import is bound to increase in the future. According to IEA report, India may need to import as much as 50 million tonnes of LPG - five times the current import. The second critical input required is to develop expertise in world gas prices. The long term LNG contract India signed with Qatar should serve as an example for the Indian government to use world class expertise. Had Qatar insisted on the contract terms, India would have been forced to pay a penalty of more than Rs 10,000 crore. Thanks to soft LNG market, surplus LNG capacity and the good relations with Qatar, India was able to re-negotiate favourable terms. The government should consider the wisdom of continuing subsidies to residential LPG customers even in times of low gas prices. Low gas prices results in misallocation of resources and failure to exploit reserves. There is an additional issue in regard to LPG: the black money generated by diverting residential LPG. |