A seminar on the expanding gas market, organised last week by the Observer Research Foundation (ORF), sought to bring some conceptual clarity on the role of the market in determining gas prices. The debate on the subject of gas pricing so far has not provided any clear-cut answers. The larger issue, of course, is how do you price scarce energy resources that are available with a nation. The issue gets complicated when nations use their natural resource base as a tool of diplomacy, as Russia had been doing with its gas reserves. There is a sort of “resource nationalism” sweeping across Latin American nations with oil and gas reserves.
Going forward, the hope is that a truly international market for gas will evolve based on its own supply and demand dynamics and gas prices will gradually get delinked from that of oil. Compared with oil, gas discovery and its commercial exploitation are far less than its potential. Gas pricing will become a big issue once a lot more gas is discovered and brought into the market.
India itself is currently sitting on huge gas potential. To attract more investments to realise such potential, a clear thinking on the pricing of gas will have to be evolved.
Speaking at the seminar, Planing Commission Chairman Montek Ahluwalia sought to clarify key issues relating to gas pricing. Though given our own domestic political compulsions, Mr Ahluwalia could go only so far as to suggest that we should progressively move towards market determined prices for gas just as we are doing for petroleum products.
Mr Ahluwalia said the next few years would see a lot of new gas discoveries fructifying especially from the private sector initiatives. “I think this period will allow us to experiment with a system where a very substantial volume of gas will not be under the administered price method (APM).”
Of course, inextricably linked to the issue of pricing is the role of the gas regulator. The regulator will have to ensure there is enough competition both in production and distribution so that a truly market price evolves.
Mr Ahluwalia also significantly argued that “the APM regime has created an expectation that somehow gas would be available at relatively low prices for the power sector. This led to a lot of power capacity being set up based on loose assurances of availability of supply which were not legally enforceable”.
Mr Ahluwalia said investors in power plants seem to have learnt their own lessons and consequently not much investments would be forthcoming for gas-based power projects. The higher gas prices will simply act as a deterrent, according to Mr Ahluwalia.
He said use of gas for power will really be determined by the cost efficiency of coal as feedstock. If coal produces much cheaper power than gas, after factoring in the cost of carbon emissions, the market would prefer use of coal for power.
However, the question of market-determined price for gas hinges on the hope that progressive gas finds will be kept out of the APM system and a substantial volume of gas production will remain outside price control. This depends on how domestic and international politics evolve in a geo-strategic context. For instance, if China tries to spread its influence by commercially capturing gas resources in India’s neighbourhood, it is bound to create a tendency among India’s political class to control the gas market. Cooperative energy diplomacy, rather than a confrontationist one, will help evolve freer gas market in the region.
Going forward, the hope is that a truly international market for gas will evolve based on its own supply and demand dynamics and gas prices will gradually get delinked from that of oil. Compared with oil, gas discovery and its commercial exploitation are far less than its potential. Gas pricing will become a big issue once a lot more gas is discovered and brought into the market.
India itself is currently sitting on huge gas potential. To attract more investments to realise such potential, a clear thinking on the pricing of gas will have to be evolved.
Speaking at the seminar, Planing Commission Chairman Montek Ahluwalia sought to clarify key issues relating to gas pricing. Though given our own domestic political compulsions, Mr Ahluwalia could go only so far as to suggest that we should progressively move towards market determined prices for gas just as we are doing for petroleum products.
Mr Ahluwalia said the next few years would see a lot of new gas discoveries fructifying especially from the private sector initiatives. “I think this period will allow us to experiment with a system where a very substantial volume of gas will not be under the administered price method (APM).”
Of course, inextricably linked to the issue of pricing is the role of the gas regulator. The regulator will have to ensure there is enough competition both in production and distribution so that a truly market price evolves.
Mr Ahluwalia also significantly argued that “the APM regime has created an expectation that somehow gas would be available at relatively low prices for the power sector. This led to a lot of power capacity being set up based on loose assurances of availability of supply which were not legally enforceable”.
Mr Ahluwalia said investors in power plants seem to have learnt their own lessons and consequently not much investments would be forthcoming for gas-based power projects. The higher gas prices will simply act as a deterrent, according to Mr Ahluwalia.
He said use of gas for power will really be determined by the cost efficiency of coal as feedstock. If coal produces much cheaper power than gas, after factoring in the cost of carbon emissions, the market would prefer use of coal for power.
However, the question of market-determined price for gas hinges on the hope that progressive gas finds will be kept out of the APM system and a substantial volume of gas production will remain outside price control. This depends on how domestic and international politics evolve in a geo-strategic context. For instance, if China tries to spread its influence by commercially capturing gas resources in India’s neighbourhood, it is bound to create a tendency among India’s political class to control the gas market. Cooperative energy diplomacy, rather than a confrontationist one, will help evolve freer gas market in the region.
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