June 2020

The pandemic and its economic impact has led to a dramatic crash in global fuel demand and prices have fallen as well. India’s demand too has fallen in sync with the national lockdown. But this may be an aberration.

As the economy slowly normalises, secular trends in the energy sector are likely to revive. These trends include rising demand for crude and gas due to economic growth and a mandated policy of shifting from coal and firewood (for cooking) to gas and petroleum products.

At the same time, while demand has risen, domestic production has fallen. Hence, there is increasing dependence on imports. In 2019-20, India imported over 85 per cent of its crude oil and about 50 per cent of its gas. Fortunately, India has sufficient refining capacity to process what it consumes and even export products to offset some of the import bill.

There have been quite a few policy changes designed to encourage more investments in domestic E&P. These include the launch of HELP, the DSF Policy and the OALP. There have been four rounds of OALP and the fifth round of bidding is in progress. The National Seismic Programme has also created a better picture of potential areas of interest. Norms related to E&P have also been eased to encourage investment. However, low global prices have led to a situation where cheap imports are retarding domestic exploration efforts.

There has also been significant progress in developing the CGD network along with CNG stations. A total of 136 GAs have been awarded to CGD entities. The PNGRB has proposed the award of 44 new GAs in the upcoming eleventh round of bidding for CGD licences.

Pipeline and terminal infrastructure has improved. The government is also considering bringing natural gas under the ambit of the GST regime and offering pricing freedom to gas producers. Moreover, on June 15, 2020, India launched the Indian Gas Exchange, taking a big step towards market-based pricing and trading of natural gas.

All this is consistent with a policy of shifting to gas and reducing the carbon footprint. There is plenty of scope for this since gas accounts for only about 6 per cent of the Indian energy mix whereas it is about 25 per cent in most other large economies. Incidentally, this period of depressed prices may present an opportunity for gas importers to renegotiate contracts.

However, the current conditions have stressed the finances of most players in the sector. Apart from low demand and inventory write-downs, the government has also been slow to meet its subsidy commitments. Projects have been delayed. We can only hope that this situation is short-lived and the sector resumes its upward trend once there is an economic rebound.


Enter your email address