India is making a move towards gradually ending government control over gas pricing. According to Union Oil minister Dharmendra Pradhan, going ahead, gas pricing would essentially be dependent on market forces than on government controlled pricing.
Since 2012, there has been debate over whether gas prices should come under the purview of the government itself. It has been a point of much debate. Up until now, the government was key in approving price, fixing gas users and even allocating quantities. All this has continued to create hurdles to gas market development.
In March, the US Federal Energy Regulatory Commission (FERC) Chairman Neil Chatterjee advocated in India the use of market forces to decide energy markets, and said India has the appetite for the “competitive” US gas too.
Drawing from the experience of the US markets, he said subsidies distort price signals in the market. “Markets provide efficiencies and benefits to consumers. Ultimately market forces will be to the benefit of India and Indian consumers.” In January 2019, The International Energy Agency (IEA) while making an in-depth review of India’s energy policies had slammed India’s natural gas pricing policy, saying that linking domestic production to very low global reference pricing has reduced incentives for producers to raise supplies.
With movement towards market forces, this trend would definitely see a curb.
Natural gas prices should remain a function of market supply and demand. This would mean that any increases in natural gas supply will result in lower natural gas prices. Further, a decrease in supply will tend to lead to higher prices. Increases in demand generally lead to higher prices, and decreases in demand tend to lead to lower prices. There is fair play in competition guaranteed. As of now, India’s fuel consumption has hit rock bottom due to the ongoing lockdown conditions. As the lockdown has opened up in various states, the country’s fuel demand is at 85% of June 2019 levels. It is estimated that by the end of second quarter of FY21, fuel demand will be as usual. Substantiating on this Pradhan has said that the country’s fuel demand, except jet fuel, will recover to pre-coronavirus level by September-October.
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