What is the scope of an international gas pipeline to India? Is it bright or is it dim?
Well, the answer is not straightforward at all. It depends on its geopolitical, financial and technical viability, as well its economic competitiveness relative to gas from others supply sources such as domestic gas and LNG imports. This competitiveness will also have to be assessed relative to other fossils and renewables in meeting demand. Eventually, to a large extent, it will also depend on how the energy markets will evolve in future, which most energy experts believe is not easily predictable.
Pipelines can be a useful way to boost the total supply of gas in the country. Gas will play a major role in Indian energy mix because it can be used effectively in several demand sectors. In the power sector, it can be used to balance the variability of renewables, for a clear power generation mix; in the transport sector, a fuel switch from oil to gas can facilitate decarbonization. For these reasons, the total demand for gas is expected to double by 2029-30 (PNGRB, Vision 2030). But the domestic supply has not kept up to meet this demand. As a result, there is a huge supply deficit which is increasingly met by gas imports, almost 60% of the total gas supply. India ships 70% of its Liquefied Natural Gas (LNG) imports from Qatar, any tension in that area can threaten India’s energy security.
India has no international gas pipeline. All its gas import needs are met by shipments of LNG. To complement this supply, international gas pipelines to India are proposed. Some steps were taken in this direction, for instance, the IPI (Iran, Pakistan and India Pipeline) and the TAPI (Turkmenistan, Afghanistan, Pakistan and India Pipeline), but none of them have materialized until now because of geopolitical tensions in land areas through which the proposed pipelines passed. For this reason, some critics admit that there is a bleak scope of the international gas pipeline via land to India. The discussions are therefore moving towards deep water pipelines to India which circumvent conflict areas. There are proposals for the construction of a deepwater pipeline from Iran through the Arabian Sea to India.
Market players are pushing for a deepwater pipeline on the grounds that it will be cheap relative to imported LNG. 50% of gas is consumed by Power and Fertilizer industry. There are several stranded gas- generation plants that have been unable to recover power generation costs as LNG is expensive. Similarly, fertilizer industries that use gas as input often have to be provided subsidized LNG. They argue that a deep-water pipeline gas will lead to significant cost reduction compared to imported LNG. The landed cost ($/MMBtu) for gas through the pipeline, will be almost 2$ to 3$ cheap, at $5.22 –$5.50 relative to imported LNG, which is priced at $7.50- $8.50. This difference is mainly because in the case of a pipeline, the liquefaction, transportation and regasification cost from one port to the port, is almost zero.
In spite of these reasons, from discussions with government experts, one can gather that there is still not enough agreement in support of a deepwater pipeline. There are unanswered questions on the financial viability of such a project in a rapidly transforming energy market. A deepwater pipeline is a fixed asset which entails a huge capital cost, as the technology landscape transforms more and more, there are doubts as to whether a pipeline will be a sensible move, given that talks on floating LNG markets and LNG gas hubs are already doing rounds, which can bring favorable gas costs. Moreover, although several technical feasibility studies on deep water have been conducted, there are no finished projects of deepwater pipelines as of now, which creates venturing into this unexplored territory a risky proposition.
From where things stand, at present, it is difficult to say what lies ahead for the future of international gas pipeline to India.
Receive Daily Updates
Recent Posts
Petrol in India is cheaper than in countries like Hong Kong, Germany and the UK but costlier than in China, Brazil, Japan, the US, Russia, Pakistan and Sri Lanka, a Bank of Baroda Economics Research report showed.
Rising fuel prices in India have led to considerable debate on which government, state or central, should be lowering their taxes to keep prices under control.
The rise in fuel prices is mainly due to the global price of crude oil (raw material for making petrol and diesel) going up. Further, a stronger dollar has added to the cost of crude oil.
Amongst comparable countries (per capita wise), prices in India are higher than those in Vietnam, Kenya, Ukraine, Bangladesh, Nepal, Pakistan, Sri Lanka, and Venezuela. Countries that are major oil producers have much lower prices.
In the report, the Philippines has a comparable petrol price but has a per capita income higher than India by over 50 per cent.
Countries which have a lower per capita income like Kenya, Bangladesh, Nepal, Pakistan, and Venezuela have much lower prices of petrol and hence are impacted less than India.
“Therefore there is still a strong case for the government to consider lowering the taxes on fuel to protect the interest of the people,” the report argued.
India is the world’s third-biggest oil consuming and importing nation. It imports 85 per cent of its oil needs and so prices retail fuel at import parity rates.
With the global surge in energy prices, the cost of producing petrol, diesel and other petroleum products also went up for oil companies in India.
They raised petrol and diesel prices by Rs 10 a litre in just over a fortnight beginning March 22 but hit a pause button soon after as the move faced criticism and the opposition parties asked the government to cut taxes instead.
India imports most of its oil from a group of countries called the ‘OPEC +’ (i.e, Iran, Iraq, Saudi Arabia, Venezuela, Kuwait, United Arab Emirates, Russia, etc), which produces 40% of the world’s crude oil.
As they have the power to dictate fuel supply and prices, their decision of limiting the global supply reduces supply in India, thus raising prices
The government charges about 167% tax (excise) on petrol and 129% on diesel as compared to US (20%), UK (62%), Italy and Germany (65%).
The abominable excise duty is 2/3rd of the cost, and the base price, dealer commission and freight form the rest.
Here is an approximate break-up (in Rs):
a)Base Price | 39 |
b)Freight | 0.34 |
c) Price Charged to Dealers = (a+b) | 39.34 |
d) Excise Duty | 40.17 |
e) Dealer Commission | 4.68 |
f) VAT | 25.35 |
g) Retail Selling Price | 109.54 |
Looked closely, much of the cost of petrol and diesel is due to higher tax rate by govt, specifically excise duty.
So the question is why government is not reducing the prices ?
India, being a developing country, it does require gigantic amount of funding for its infrastructure projects as well as welfare schemes.
However, we as a society is yet to be tax-compliant. Many people evade the direct tax and that’s the reason why govt’s hands are tied. Govt. needs the money to fund various programs and at the same time it is not generating enough revenue from direct taxes.
That’s the reason why, govt is bumping up its revenue through higher indirect taxes such as GST or excise duty as in the case of petrol and diesel.
Direct taxes are progressive as it taxes according to an individuals’ income however indirect tax such as excise duty or GST are regressive in the sense that the poorest of the poor and richest of the rich have to pay the same amount.
Does not matter, if you are an auto-driver or owner of a Mercedes, end of the day both pay the same price for petrol/diesel-that’s why it is regressive in nature.
But unlike direct tax where tax evasion is rampant, indirect tax can not be evaded due to their very nature and as long as huge no of Indians keep evading direct taxes, indirect tax such as excise duty will be difficult for the govt to reduce, because it may reduce the revenue and hamper may programs of the govt.