LNG import duty cut on budget agenda

New Delhi, Jan. 25: The government may cut the import duty on liquefied natural gas (LNG) in the budget to boost clean energy, reduce carbon emissions and prevent the excess use of fossil fuel following the slump in global crude prices.

At present, LNG imports attract a customs duty of 5 per cent. Officials indicated that the finance ministry might bring it down by half as a complete exemption at one go might not be possible.

Analysts said a cut in LNG import prices would make natural gas attractive and would enable it to be priced competitively against domestically produced gas.

According to the oil ministry’s petroleum planning and analysis cell, the country imported 11.58 million tonnes (mt) of gas in 2014-15. Imports have touched 11.99mt during the April-December period of the current fiscal itself.

Domestic output stood at 32,693 million metric standard cubic metres (mmscm) in 2014-15, while it was 21,187 mmscm during April-November this fiscal, the PPAC data showed.

Though a few domestic discoveries have marginally added to gas production, the demand has continuously outstripped supply. Imported LNG is crucial to meet the gap.

Industry sources said LNG deserved more fiscal concessions because it was the cleanest fossil fuel and environment friendly.

The country’s gas production is projected to rise to nearly 90 billion cubic metres (bcm) in 2040 from 35 bcm in 2013, but it will still leave a sizeable gap of around 80 bcm that needs to be met through imports.

Domestic LNG demand is expected to grow at a compound annual growth rate of 16.89 per cent to 306.54 mmscmd by 2021 from 64 mmscmd in 2015, according to a report by TechSci Research.

By the end of 2015, gas pipeline infrastructure stood at 15,808 km and an additional 11,397 km of pipelines are expected to be added over the next few years.

The power sector is the leading user of natural gas in India and consumes nearly one-third of the total domestic output. The fertiliser sector is the other major consumer.

The government is increasing its focus on gas-based power projects because of their high efficiency, low gestation period, environmental factors and lesser requirement of water and land.

“Increasing focus on the expansion of gas pipeline, rising demand for gas from power and industrial sectors and favourable government policies make LNG a commercially viable and suitable fuel for various end users in India. As a result, LNG demand is forecast to witness robust growth over the next 5-10 years.” Karan Chechi, research director with TechSci Research, said.

In a move to boost gas supplies, India had recently re-negotiated the gas deal reducing the price by half to about $6-7 per million British thermal unit with RasGas of Qatar adopting a new formula.

The country had earlier agreed to by 7.5 million tonnes a year of LNG from RasGas on a long-term contract ending in April 2028. Apart from the earlier contracted amount, India would buy an additional one million tons will run concurrently with the current contract ending April 2028.

Price of domestic natural gas, using the formula approved by the government, is projected to fall to $3.22 per million British thermal unit in the first half of 2016-17 from current $3.82 per mmBtu.

“The transition to a market-related price formation mechanism would promote an increase in both domestic production and imports,” the Oxford Institute for Energy Studies said in a study.

The government has stated pricing freedom for small and marginal field which are slated for auction. The petroleum ministry had in November 2015 distributed a consultation paper seeking the views of the oil and gas industry on the freeing of natural gas prices.

The thinking in the government is that as the current price of gas is too low to support exploration and production costs, freeing its price and allowing it to be determined by market forces may incentivise production of the natural resource in future.

Several major exploration firms have for long been seeking freeing of natural gas prices as they claim the current prices do not incentivise the high cost of exploration.

India is the fifth largest importer of LNG after Japan, South Korea, the United Kingdom and Spain and accounts for 5.5 percent of the total global trade.

The government Gas Allocation Policy, aimed at addressing demand for natural gas across various end user industries.

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