Reforms to boost gas output 22% to 110 mmscmd by FY21: ICRA

Recent reforms in the oil and gas sector involving market-linked pricing will help the country drill out 22 percent more gas at 110 mmscmd by 2020-21, a report said Tuesday. Early this month, the government unveiled a slew of reforms to attract investments into the domestic oil and gas sector by nearly doubling gas prices to over USD 7 a unit, apart from liberalising pricing. “The pricing formula along with marketing freedom will improve viability of gas discoveries in challenging fields and can lead to higher domestic gas production over the longer term,” rating agency ICRA said in a note. It expects domestic gas production to rise to around 110 million metric standard cubic metre per day (mmscmd) by FY21 and 130 mmscmd by FY25 from 90 mmscmd in FY16. Similarly, demand for gas will be rising to 250 mmscmd by FY20 and 290 mmscmd by FY25 from the current demand of 230 mmscmd. But this projected demand is lower than what the agency had earlier projected at 275 mmscmd by FY20 and 330 mmscmd by FY25, saying gas demand will fall due to stiff competition from liquid fuels. Significantly, the peak levels of actual consumption in the past were 170 mmscmd in FY12 and 177 mmscmd in FY11. But actual consumption has declined consistently since to around 140 mmscmd in FY15 and FY16. Domestic gas prices have seen two downward revisions, in April 2015 and October 2015, following which the prices declined by 24 per cent to USD 3.88/mmbtu in second half of FY16 from USD5.05/mmbtu in November 2014 – March 2015. The prices are expected to decline further from April 2016 in line with the decline in global gas prices, the report said, adding the fall in domestic gas prices had made future development of many gas fields unviable. Following this, the government recently provided marketing and pricing freedom to deepwater, ultra-deepwater and high pressure-high temperature areas that are yet to begin production as of January 1 of this calendar.