“Myopic gas pricing policy, does not encourage producers”

India’s gas pricing policy must be fixed and the 2014 formula must be scrapped, Vivek Rae, chairman of the Hindustan Oil Exploration Company (HOEC), said on Saturday. Rae said the current formula is “myopic” and does not entice gas producers. In India, gas penetration is 6% against a global average of 23%. The field is to improve that number to 15 percent over the next few years.

The price of Indian gas is determined based on an average price of LNG imports into India and world benchmark gas prices. “India’s gas pricing policy is myopic. We are simply underestimating a scarce resource. At current prices, you are penalizing the producer and somehow the consumer wins out over the producer,” Rae, a former petroleum secretary, said in a discussion of a book, “Unfilled Barrels: India’s Oil Story,” writes by Richa Mishra.

“It’s a crazy formula. We price our resources based on the price in countries where the resource is not scarce,” he explained.

Indian policy makers need to get the prices right, while predatory taxation needs to be removed. Similarly, it is necessary to clean up tax structures while providing political stability.

Speaking on this occasion, Raghuvir Srinivasan, Editor-in-Chief, Activity area, said that despite all the reforms in the sector, the “downstream segment is a bit of a mess”. While regulators in the telecommunications sector and elsewhere have been successful, this has not been the case with gasoline.

However, on the positive side, Indian companies have created “world-class assets on the ground”, including refineries, “despite the shackles hanging over them”.

“We have created assets that can supply more than a billion people without any interruption. There is no state or city that has experienced a fuel crisis or a fuel shortage in recent times,” he said.

“A militarized resource”

According to Srinivasan, oil reserves continue to be in the domain of the oligarchs and big business. Current geopolitical events show that “the natural resource has been militarized”.

“Russia is threatening to cut off the gas supply and the western world is also reacting. And in the midst of that, there are countries like India – which have no interest – paying the price,” he said.

Explaining some of the dynamics, Sunjoy Joshi, President of the Observer Research Foundation, said the upstream segment is a high-risk segment and is also about probabilities.

“So if you see, Venezuela not Saudi Arabia has the largest oil reserves. So the upstream segment is a matter of probabilities and it remains a high risk,” he said.

Published on

July 09, 2022

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