India's gas pricing regime has brought about a major gas supply shortfall, effectively halting economic activity, according to research from IHS Inc. India's gas pricing reforms, which are expected to come into effect this year, represent an important policy shift, and should stimulate domestic production, soften growth in reliance on expensive liquified natural gas (LNG) and accelerate India's economy, the research concludes.
The planned increase to the gas prices has a potential to improve India's balance of payments outlook, enhance security of supply and attract investments into the service industry and supply chain, the report says.
"India's economy is fragile, struggling with low growth and high inflation. One of the key factors underlying the difficult economic outlook is India's unfolding energy crisis. Unmet gas demand now represents a considerable drag on India's economy and the cost of maintaining subsidized, low gas prices has become unsustainable," said Rajiv Biswas, chief economist -- Asia-Pacific at IHS. "The current set of policy reforms increases the price of domestically produced gas, thereby stimulating additional domestic exploration and production activity. The resultant new gas supplies would boost India's economy at a time when business and consumer sentiment is fading, investment inflows have slumped and manufacturing is in recession."
India's prior gas-market pricing policies have long distorted India's gas supply and demand patterns, weakened investment into domestic gas exploration and accelerated inefficient consumption habits, according to IHS. All of these factors have contributed to the country's reliance on LNG imports, making India the world's fifth-largest LNG consumer.
Indian government figures for offshore exploration and production showed investments fell from $6 billion in 2007 to 2008 to $1.8 billion in 2011 to 2012. Meanwhile, the Indian energy firms invested more than triple this value on projects outside of India, resulting in a decline of nearly 60 percent in Indian offshore drilling activity over the 2007 to 2013 period, IHS says.
The newly-announced gas pricing regime is expected to roughly double gas prices to $8.50 per million Btu (MMBtu) -- from $4.20 per MMBtu in 2010 -- maintained over the next five years, the report says.
"Until 2004, India met its own natural gas needs, but now the country's energy supply relies on expensive LNG imports, priced at more than triple the Administered Price Mechanism (APM) rate, which now accounts for 35 percent of its overall supply," said Kash Burchett, senior analyst at IHS Energy. "The government has begun to deregulate gas prices, but the extent of the reforms is not yet clear. A higher APM rate could pave the way for increased domestic production, reduce the reliance on expensive LNG imports and help foster local industrial supply chain development without compromising the economy's competitiveness."
By implementing the energy reforms and doubling the gas price, the Indian government will not only allow Indian gas producers to achieve significant gains, but also encourage explorations of more expensive gas fields -- especially offshore
The IHS study says that although the new price outlook implies significant additions from the middle of next decade, gas production will not recover overnight, but it could stimulate domestic economic activity and ease the call on LNG. Consequently, despite the planned increase in India's gas price and associated growth in domestic output, in the short term, India's dependence on LNG imports will inevitably rise through the present decade. The majority of new imports will come from new production sources in North America and offshore East Africa
Source: Fierce Energy
The planned increase to the gas prices has a potential to improve India's balance of payments outlook, enhance security of supply and attract investments into the service industry and supply chain, the report says.
"India's economy is fragile, struggling with low growth and high inflation. One of the key factors underlying the difficult economic outlook is India's unfolding energy crisis. Unmet gas demand now represents a considerable drag on India's economy and the cost of maintaining subsidized, low gas prices has become unsustainable," said Rajiv Biswas, chief economist -- Asia-Pacific at IHS. "The current set of policy reforms increases the price of domestically produced gas, thereby stimulating additional domestic exploration and production activity. The resultant new gas supplies would boost India's economy at a time when business and consumer sentiment is fading, investment inflows have slumped and manufacturing is in recession."
India's prior gas-market pricing policies have long distorted India's gas supply and demand patterns, weakened investment into domestic gas exploration and accelerated inefficient consumption habits, according to IHS. All of these factors have contributed to the country's reliance on LNG imports, making India the world's fifth-largest LNG consumer.
Indian government figures for offshore exploration and production showed investments fell from $6 billion in 2007 to 2008 to $1.8 billion in 2011 to 2012. Meanwhile, the Indian energy firms invested more than triple this value on projects outside of India, resulting in a decline of nearly 60 percent in Indian offshore drilling activity over the 2007 to 2013 period, IHS says.
The newly-announced gas pricing regime is expected to roughly double gas prices to $8.50 per million Btu (MMBtu) -- from $4.20 per MMBtu in 2010 -- maintained over the next five years, the report says.
"Until 2004, India met its own natural gas needs, but now the country's energy supply relies on expensive LNG imports, priced at more than triple the Administered Price Mechanism (APM) rate, which now accounts for 35 percent of its overall supply," said Kash Burchett, senior analyst at IHS Energy. "The government has begun to deregulate gas prices, but the extent of the reforms is not yet clear. A higher APM rate could pave the way for increased domestic production, reduce the reliance on expensive LNG imports and help foster local industrial supply chain development without compromising the economy's competitiveness."
By implementing the energy reforms and doubling the gas price, the Indian government will not only allow Indian gas producers to achieve significant gains, but also encourage explorations of more expensive gas fields -- especially offshore
The IHS study says that although the new price outlook implies significant additions from the middle of next decade, gas production will not recover overnight, but it could stimulate domestic economic activity and ease the call on LNG. Consequently, despite the planned increase in India's gas price and associated growth in domestic output, in the short term, India's dependence on LNG imports will inevitably rise through the present decade. The majority of new imports will come from new production sources in North America and offshore East Africa
Source: Fierce Energy
0 comments:
Post a Comment