NEW DELHI: India has become an attractiveinvestment destination for gas explorationbecause it has decided to raise gas prices from April, which will also contain the spurt in gas demand, Oil Minister Veerappa Moilysaid.
Moily said investors had been shying away from investing in India because of low prices of domestic gas. The government has decided to raise the price of gas from next financial year, which would "certainly make India an attractive destination for investment in the sector", he said. "India has large proven reserves of gas that remain unexploited.
While the total proven reserves are 1.3 trillion cubic metres, what is currently exploited is only 0.04 tcm," Moily said in the keynote address at the LNG producer-consumer conference in Tokyo. Moily said there was a gas demandsupply mismatch in India because of artificially depressed gas prices.
The country's gas demand is estimated to jump by 94% over 2012-17, while output growth will be 66%, he said. In case, gas prices are below $5.8-6.5 per unit, its demand would soar to 260-350 million standard cubic meters per day, he said citing a study.
If prices were raised to $10-12 per unit, potential domestic gas demand would be lower at around 180 mmscmd. And at $12-18 per unit, the potential demand would be limited to 38 mmscmd only, he added. Moily said consumers in the Asia-Pacific region are paying high prices for imported gas compared to North America and Europe.
"This is in spite of the fact that the Asia-Pacific region is the largest consumer of LNG globally, accounting for 66% of the global consumption and also hosts the major producers of LNG," he said.
"This unreasonable burden on the buyers of the Asia-Pacific region is the 'Asian Premium'. We don't find any rationale for such a premium now. Such high prices in the region would benefit neither the buyers nor the producers/suppliers. If this trend continues, there is no doubt that demand would drift away from LNG to other competing fuels," he said.
Ideally, the price of a commodity should reflect the demand-supply dynamics in the markets where it is traded. Between markets, the price differential should reflect only the transport and other logistics costs involved. This unfortunately is not the case in the Asia-Pacific region.
The practice of the 'oil linkage' that has no more relevance or rationale today, is still continuing in gas pricing in the region and is largely responsible for such abnormally high prices, he said.