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Gas for sale

Gas for sale
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First Published: Wed, Apr 11 2007. 11 55 PM IST
Updated: Wed, Apr 11 2007. 11 55 PM IST
A debate that has been simmering so far is now warming up as leading gas producers in the world take the initial steps for cooperation in natural gas exports. There are fears of cartelization, a la Opec in the global oil market—wherein prices are managed through controls over significant export supplies—and naturally, gas importing nations as well as sector experts are increasingly voicing their fears. But, the imperatives of a gas market are vastly different from crude oil. The market for the former is still to fully mature (the spot market that allows for better price discovery is a small share of the total trade), and a gas cartel is still far off in the future. Yet, since it is acquiring a certain presence in national energy strategies across the globe, it’s worth looking at India’s options on the natural gas front.
We argue that there might be an opportunity for us in gas trading in the future. And that policymakers might need to shift from a view on securing gas for domestic demand to a longer-term one of export possibilities.
First, the nature of gas markets being different from oil raises the stakes involved, as geopolitical strength can be much higher in the former. Gas can’t be exported as easily as oil. For transporting natural gas, we first need to liquify it and then regasify it at the importer’s end. Given the higher investment in this supply chain, including costs of transit, disruptions become very critical—importers can’t easily get alternative gas suppliers in case an existing source stops the flow. So, it’s not just having reserves that makes you a supplier of choice—it also involves political stability and sanctity of contracts, where India scores relatively well.
Second, markets are made not just by sitting on reserves but by having spare capacities for export. Iran, Russia and several other countries are in that league at present. And are therefore taking the lead to work on evolving a more mature gas market—and its price determination. Some of the countries open to exploring this option are not even exporting significant volumes but hold the potential to do so. They’re thinking ahead.
Now, India is already set to shift from a position where demand is double of supply to self-sufficiency in about five years. So it may be worth looking at emerging signals, if any. Our prospects for gas discoveries have vastly improved from a few years back—consider the aggressive bidding by major companies for gas blocks in the country. Even the government’s financial terms in the bidding process are now more aggressive. As the government is a quasi shareholder in the production sharing contracts for gas blocks, it makes sense for it to work on getting the best price for these. And the potential for finding gas could go up further. So, why not consider the possibility of spare capacities (net of domestic consumption) in the long term?
Since gas demand is a function of price, one problem is that our studies on a key source of domestic demand (power sector) suffer from major limitations. These don’t factor in the true costs of alternatives such as coal for thermal power. Nor do they consider the distortions in hydel power—if premium pricing for peak demand was allowed, this would attract more investment and, in turn, lower tariffs. It would be far-sighted to evaluate the scenario of a deregulated coal sector (we sit on huge reserves of coal) and accelerated development in the hydel sector.
In such a situation, we could, possibly, look at some of our gas being released for exports. It is in the nation’s interest to look far ahead in an area as vital as energy. The bottom line: to see if there an opportunity here, we’ll need to correct the price distortions in energy alternatives first.
Shouldn’t we evaluate all possible gains from gas? Write to us at views@livemint.com
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First Published: Wed, Apr 11 2007. 11 55 PM IST
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