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India doubles price of natural gas to attract investment

Jul 012013
 

India doubles price of natural gas to attract investmentThe government of India has approved a doubling of natural gas prices, in a politically-sensitive move that will take effect around the time of next year’s elections.

It is hoped that the first rise in the price of gas for three years will increase investment in the sector.

The rise will have a knock-on effect on the cost of electricity, transport fuel, fertiliser and cooking gas.

Shares in India’s domestic gas producers rose sharply on the news.

The Cabinet Committee on Economic Affairs said the price of domestically produced natural gas should rise to $8 per unit, from the current $4.20, in April next year.

‘Positive’ move

Indian state energy companies welcomed the news, saying it will increase investment within the sector and help to attract money from outside.

“It is more than expected. We expected up to $6.70 (per unit). This is really positive. It will encourage us to invest more in exploration,” said TK Ananth Kumar, finance director at state-run Oil India.

Demand for gas in India, which is Asia’s third-largest economy, far exceeds production. However, the government keeps prices artificially low, and this has deterred investment in developing production capacity, including the building of pipelines and terminals for more expensive liquid natural gas (LNG).

Coal and oil dominate India’s energy mix at the moment, with coal accounting for 56% and oil 26%. India’s government aims to double the proportion of natural gas to 20% by 2020.

Inflation warning

However, the price increase is unlikely to be popular with voters, who go to the polls for both local and national elections within the next 12 months.

Shares in the country’s gas producers jumped significantly. The largest state-run energy explorer, ONGC, saw its shares rise by more than 10% at one point on the Mumbai Stock Exchange, while shares in privately-owned Reliance Industries gained 5%.

The Communist Party of India (CPI) described the price rise as a “disaster”, which would lead to accelerating inflation and higher costs for farmers.

CPI leader Gurudas Dasgupta said the government had caved in to “pressure” from the corporate sector.