Gas energy: Time for Govt. to wake up - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks


Login Failure
(Please do not use this option on a public machine)
  Sign Up | Forgot Password?  

Gas energy: Time for Govt. to wake up

Mar 16, 2011

Per capita energy consumption is one of the most important parameters to place a nation in development index. As India accelerates with the GDP growth at 9% per annum , energy issues are going to be huge. Currently, we depend on oil imports to the extent of more than 70% to meet our energy needs. But to sustain this growth rate, we need to move away from conventional and volatile oil source and towards gas energy. So how are we gearing up to meet this challenge?

One such effort in the direction is TAPI (Turkmenistan, Afghanistan, Iran, Pakistan and India) gas pipe line project. Hopes are pinned high on TAPI project post IPI (Iran Pakistan India) project failure. At a cost of around US$ 7.6 bn, the pipeline should commission by 2014- 2015 if work starts now. At 38 mmscmd, it will serve close to 10% (as per 2015 estimated need) of gas energy demand in India. But the proposed venture is fraught with political risks. India, being the last in the pipeline trail, is expected to bear highest costs.

Turkmenistan had initially come up with a demand to link natural gas price to price of naphtha . The logic was that natural gas is finally used to substitute latter. The proposition is ridiculous as we already have oversupply of fuel oil and naphtha. When it got shrugged off, the new suggestion was to link it to prices of gas imports from Australia and Qatar. It is crucial to mention here that price from both these sources is four times and double the domestic gas price respectively.

As of now, the cost that India is supposed to pay for the gas from this pipeline comes to a minimum US$ 10/mmBtu. This compares to $7.5 per mmBtu - the rate at which Turkmenistan sells gas to China. The premium that India is supposed to pay covers not only transportation charges, but the guarantee for safe passage through not so friendly neighbors. This also compares to US$ 4.2 per mmBtu of rate under APM (Administered price mechanism) regime. But why are we dumping so much of statistics here. The point we are making is - with such pricing terms, aren't we better off increasing our imports than investing in multi billion pipeline fraught with security concerns? Especially when supply from this pipeline is not even guaranteed. In brief, the discussions are too theoretical. If the project goes through with such pricing terms , it could turn out to be a retrogressive step.

The other option is to spend this capital on domestic exploration ventures . It will be much better than dumping so much of capital on the fishy pipeline . We believe it will be better to go for JVs with foreign partners and come up with a uniform gas pricing policy in India that promotes such ventures.

In this regard, RIL BP deal is a landmark in India's energy sector landscape. It has set prospects that can change the gas supply dynamics in India. If such projects are undertaken to explore deep water reserves for Shale gas , the benefits are enormous and viable from cost point of view.

Even otherwise, Indian players can invest in foreign firms' shale gas energy assets. RIL has one such investment in Atlas Energy of USA.

But these are just minor feats. Most companies are sure of shale gas prospects here. As a proof, ONGC has come up with the biggest shale gas discovery in West Bengal . What keeps them at bay are arcane policies and regulatory issues. One such hurdle is land acquisition (as exploration can't be done in small blocks). For shale gas projects, the blocks must be auctioned and resulting gas should be allowed to be sold without any price controls. Then only, foreign firms will show any interest to unlock the energy potential in India.

Recently, the Centre announced that it expects RIL's D6 basin output to increase by 12 mmscmd (@ US$ 4.32 per mmBtu) by April. This compares to 38 mmscmd at minimum US$ 10 per mmBtu through the TAPI pipeline. And this supply will be after 6 years. On the other hand, we have U.S that has made a mark in exploiting Shale gas assets and is using gas at US$ 4 per mmBtu. This is down from US$ 13 per mmBtu in the past .The price is significant as it implies a decoupling from oil prices unlike the pricing term suggested for gas from TAPI pipeline ( that will keep us dancing to vagaries of crude oil). Since this pipeline will anyway take at least 6 years, we wonder if this is a wise investment option at all.

The final picture will be clearer only once pricing terms are finalized. We can only wish for Indian Government to wake up to the need of right policies . If the same were undertaken in time, perhaps we would not have needed gas deals with Gulf nations at all, thus putting domestic energy security to ransom by not so friendly neighbours.

Equitymaster requests your view! Post a comment on "Gas energy: Time for Govt. to wake up". Click here!


More Views on News

GAIL 2020-21 Annual Report Analysis (Annual Result Update)

Oct 19, 2021 | Updated on Oct 19, 2021

Here's an analysis of the annual report of GAIL for 2020-21. It includes a full income statement, balance sheet and cash flow analysis of GAIL. Also includes updates on the valuation of GAIL.

GAIL Announces Quarterly Results (1QFY22); Net Profit Up 796.2% (Quarterly Result Update)

Aug 9, 2021 | Updated on Aug 9, 2021

For the quarter ended June 2021, GAIL has posted a net profit of Rs 17 bn (up 796.2% YoY). Sales on the other hand came in at Rs 176 bn (up 44.4% YoY). Read on for a complete analysis of GAIL's quarterly results.

GAIL Misses Earnings Estimates. Company Ditches Plan to Split (Views On News)

Jun 10, 2021

GAIL's earnings and proposal to monetise pipelines through InvIT route, puts stock in focus.

5 Green Energy Stocks to Watch as India Readies for a Revolution (Views On News)

Oct 13, 2021

The excitement around green energy stocks has opened up a huge contrarian opportunity in the traditional energy space.

Top Performing PSU Stocks over the Past One Year (Views On News)

Oct 1, 2021

After a decade of underperformance, PSU stocks have woken up. Here are the best performing PSUs of past twelve months.

More Views on News

Most Popular

Tata Steel vs SAIL: Which Stock is Better? (Views On News)

Jan 13, 2022

With government initiatives set to boost the steel sector, find out who has a better chance of coming out on top.

Watch Out for these 4 Indian Companies Betting Big on EV Supply Chain (Views On News)

Jan 11, 2022

The upside in supply chain players could be huge but a delay in the transition to EVs, or any policy related hiccups could end the momentum.

These 5 Penny Stocks are Held by Rakesh Jhunjhunwala. Worth a Look? (Views On News)

Jan 18, 2022

Rakesh Jhunjhunwala is holding these penny stocks in his portfolio for several years now.

Tech Mahindra's CTC Acquisition: Too Expensive? (Views On News)

Jan 18, 2022

Tech Mahindra's acquisition of European IT-company fails to excite investors.

Time to Buy Energy Stocks (Fast Profits Daily)

Jan 14, 2022

Energy is a sector that looks set to take off. It's time to get in.


Become A Smarter Investor
In Just 5 Minutes

Multibagger Stock Guide 2022
Get our special report Multibagger Stocks Guide (2022 Edition) Now!
We will never sell or rent your email id.
Please read our Terms


Jan 24, 2022 01:12 PM