Gas price caps in India are a bad idea - IGU
Not everyone agrees with a report from the London-based International Gas Union (IGU) warning India against introducing gas price caps.
On August 27 (2024), the IGU released an 84-page annual Global Gas Report at the four-day Offshore Northern Seas (ONS) conference at Stavanger in Norway. In the report, the not-for-profit gas producers' umbrella association criticises India's new domestic gas pricing formula introduced in March 2023, partially linking prices to crude oil with a $6.50/mmbtu ceiling.
"Such caps can introduce the pitfall of distorting long-term economics for gas producers and suppliers," argues the IGU. However, the IGU praises the Indian oil ministry for trying to increase the share of gas in its primary energy mix from 6.7% to 15% by 2030, "surmounting challenges of affordability and availability to achieve the ambitious target."
According to the report, the new Indian domestic gas pricing formula aims to make gas more affordable for consumers, especially in the city gas and fertiliser sectors, and the formula is expected to lower prices by $1-2/mmbtu. "But the caps on gas pricing can result in a mismatch of investment and ultimately slow down progress for gas access," warns the report.
A gas retailer begs to differ. "The IGU may be right in its criticism," he acknowledges.
"But the ground realities are very different in India; people want cheap gas, be it their homes or vehicles." Another gas industry source puts affordability as the top priority.
"See how factories increased their R-LNG intake after LNG prices started coming down early this year (2024)," he stresses. "Affordability scores over availability because even if gas is available, people will not buy it unless it's affordable."
On the bright side, the IGU praises the oil ministry's revised gas transmission tariff structure released in April 2023. "These changes are likely to boost domestic consumption and encourage fuel switching from coal and oil to gas - a positive possibility for reducing greenhouse gas emissions and improving air quality."
In April 2023, India revised its gas transmission tariff structure, implementing a 'unified' system to replace the zonal structure, resulting in reduced transmission costs for factories and gas retailers.