Note4Students
From UPSC perspective, the following things are important :
Prelims level: Read the prelims box
Mains level: Oil and Gas policy, volatility and measures taken
Central Idea
- The present government has taken several measures to protect Indian consumers from international oil and gas price volatility. The recent Cabinet decision to approve a series of critical Administered Price Mechanism (APM) gas pricing reforms will further advance this objective. These reforms aim to protect Indians from extreme price volatility, promote more innovation and investments in exploration and production (E&P), and provide clarity for planned capex investments in gas-based sectors.
Reasons for oil and gas price volatility
- Global supply and demand: The balance between global supply and demand for oil and gas is a key factor in price volatility. If there is a surplus of supply, prices may decrease, while if there is a shortage of supply, prices may increase.
- Geopolitical tensions: Political tensions between countries, such as trade disputes or conflicts, can affect oil and gas prices. For example, if there is a threat of war or supply disruption in a major oil-producing country, prices may rise.
- Weather conditions: Extreme weather events, such as hurricanes or cold snaps, can impact oil and gas production and distribution, leading to price fluctuations.
- Economic growth: Economic growth can drive up demand for oil and gas, which can lead to higher prices. Conversely, economic slowdowns can reduce demand and lead to lower prices.
- OPEC decisions: The Organization of the Petroleum Exporting Countries (OPEC) plays a significant role in global oil prices by controlling production levels. Decisions made by OPEC, such as production cuts or increases, can affect prices.
Measures taken by the Indian government to protect consumers from oil and gas price volatility?
- Increasing domestic Administered Price Mechanism (APM) gas allocation: This step was taken to provide more clarity for planned capital expenditure investments in gas-based sectors and diverting gas from non-priority sectors to transport and domestic segments.
- APM gas pricing reforms: The recent Cabinet decision to approve a series of critical APM gas pricing reforms will further advance the objective of protecting Indian consumers from extreme price volatility. These reforms achieve two major goals: First, to protect Indians from extreme price volatility, and second, to promote more innovation and investments in exploration and production (E&P).
- Benchmarking APM prices: The government decided to insulate domestic gas consumers as well as national oil companies from such volatility by benchmarking APM prices to a slope of 10 per cent of Indian crude basket price to be determined on a monthly basis, together with a ceiling of $6.5/MMBTU and floor of $4.5/MMBTU for nomination fields.
- Reduction in fertiliser subsidies: After these reforms, the reduction in fertiliser subsidies is expected to be more than Rs 2,000 crore each year.
- Incentivising investment in the E&P sector: These reforms will also help incentivise investment in the E&P sector by providing a floor price for mature fields of nomination while also incentivising new wells of nomination fields which will receive 20 per cent higher prices.
- Expansion of gas pipeline network and CGD stations: Since 2014, India has increased the length of its gas pipeline network from 14,700 km to 22,000 km in 2023. The number of CGD-covered districts in India has increased from 66 in 2014 to 630 in 2023 while CNG stations have gone up from 938 in 2014 to 5,283 in 2023.
Facts for prelims
| Type of Oil/Gas | Production Process | Applications | Advantages | Disadvantages | Pollutants |
| Crude Oil | Extracted from oil wells through drilling | Transportation, fuel for power generation, industrial uses | High energy density, easy to transport | Air pollution, carbon emissions, oil spills | Carbon monoxide, nitrogen oxides, sulfur dioxide |
| Natural Gas | Extracted from gas wells through drilling or extracted alongside crude oil | Power generation, heating, cooking, industrial uses | Cleanest burning fossil fuel, high energy efficiency | Methane emissions, can leak during production and transportation | Carbon dioxide, nitrogen oxides |
| Liquefied Petroleum Gas (LPG) | Extracted during crude oil refining or extracted alongside natural gas | Cooking, heating, transportation | Clean burning, easy to store and transport | Non-renewable, carbon emissions during production and transportation | Carbon monoxide, nitrogen oxides |
| Compressed Natural Gas (CNG) | Extracted alongside crude oil or natural gas | Transportation, cooking | Lower emissions than petrol and diesel, cost-effective | Requires specialized vehicles and refueling stations, less energy-dense than petrol and diesel | Carbon monoxide, nitrogen oxides |
| Shale Gas | Extracted through hydraulic fracturing of shale rock formations | Power generation, heating, cooking, industrial uses | Abundant, reduces dependence on foreign oil, lower carbon emissions than coal | Requires large amounts of water, potential for groundwater contamination, methane leaks | Carbon dioxide, nitrogen oxides |
Way ahead for India’s oil and gas sector
- Encourage and promote domestic oil and gas production: The government should continue to incentivize domestic oil and gas production to reduce dependence on imports and minimize price volatility. This could be achieved by introducing more investor-friendly policies, simplifying regulations, and exploring untapped reserves.
- Develop a comprehensive energy policy: India needs to develop a comprehensive energy policy that outlines a clear vision for the sector’s development and growth. This policy should take into account environmental concerns, technological advancements, and future energy demands.
- Increase investment in infrastructure: The government should invest in building critical infrastructure like pipelines, terminals, and storage facilities to improve supply chain efficiency and reduce transportation costs. This will also enable the country to tap into more remote oil and gas reserves.
- Promote alternative sources of energy: Given the pressing need to reduce greenhouse gas emissions, India should promote alternative sources of energy such as solar, wind, and hydropower. This will not only help in meeting India’s climate goals but also reduce the dependence on fossil fuels.
- Improve pricing transparency: India should work towards improving pricing transparency in the oil and gas sector. This will help to ensure a level playing field for all players, promote healthy competition, and enable consumers to make informed decisions.
- Strengthen international partnerships: India should strengthen its partnerships with other countries, particularly those in the Gulf region, to ensure a stable supply of oil and gas. This will also help in diversifying sources of energy and reduce dependence on a few countries.
- Foster innovation: The government should incentivize research and development in the oil and gas sector to encourage innovation and promote the use of advanced technologies. This could help in improving extraction techniques, reducing environmental impact, and optimizing resource utilization.
Conclusion
- India’s efforts to protect its consumers from international oil and gas price volatility are commendable. The recent APM gas pricing reforms will further advance this objective and promote more innovation and investments in exploration and production (E&P) and provide clarity for planned capex investments in gas-based sectors. With a growing demand for natural gas, India is well on its way to realizing a gas-based economy as part of its broader energy transition goals. The vision of a cleaner, greener, and more sustainable energy future for India is steadily becoming a reality.
Mains question
Q. Discuss the factors behind Oil and gas sector being volatile. What are the measures taken by the Indian government to protect consumers from oil and gas price volatility?
Also read:
| What should India do in the current international energy market? |
Get an IAS/IPS ranker as your 1: 1 personal mentor for UPSC 2024
