The Cabinet decision reiterating revision and near doubling, from April next, the price of domestic natural gas is timely. The move would better align relative prices, coagulate much-needed funds in the high-risk upstream hydrocarbon sector and shore up investor sentiments. In the promising Krishna-Godavari basin in the eastern offshore, Reliance Industries (RIL) has had significant production shortfall for over three years now, and it would reportedly need to furnish a bank guarantee to counter perceptions that it is hoarding gas at its operational blocks. The revised gas price would be as per the Rangarajan committee formula, benchmarked to the going average price of what producers get elsewhere in the main markets.

The revised gas price would be far lower than the going rates for imported liquefied natural gas, which currently meets about a third of the total domestic gas demand. The ground reality is that there is a huge unmet demand for gas, with many power plants waiting for natural gas to start electricity production, for example Reliance Power plant in Samlakot, AP and GVK Power plant near Rajmundry, AP and we need to incentivise and expedite its production. The fact is that a competitive domestic price for natural gas does not currently exist, as we do not have a liquid market along with necessary pipeline network and infrastructure. Hence the need for proactive policy to develop the gas market with gas-on-gas competition for price discovery, by ramping up domestic gas production and transportation, including, potentially, pipelines from across our borders. The fact also remains that much of our sedimentary areas remain unexplored, and raw geological data seem to indicate that as much as 10 billion tonnes of oil or 1 trillion cubic metres of gas may be in situ in Indian waters.

The global spending for oil and gas exploration is $600 billion annually, half of it for high-skilled services, so we surley need forward-looking policy to increase global investor interest and boost investments in this industry, which will ultimately help Indian economy. The sooner we adopt a forward looking energy policy, the less we will be at the mercy of global price fluctuations of crude oil and LNG, and US dollar rate. In parallel, we need norms for unbundling investments in terminals, storage, pipelines and hubs for transparent price discovery, as is the global practice because it will give rich dividends for years to come.