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Study Papers | Business Studies | India | Volume 12 Issue 9, September 2023 | Popularity: 5.3 / 10

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Unlocking India's Natural Gas Potential: Challenges and Opportunities in a Price-Sensitive Market

Rajani Kant Awasthi

Abstract: The Indian gas market is expected to be one of the fastest growing in the world over the next two decades: the IEA forecasts gas demand to increase at 5.4% per annum over 2007-30 (IEA, 2009) reaching 132 bcm by 2030. Indian primary energy supply is currently dominated by coal (37%), biomass and waste (27%) and oil (26%) while the share of natural gas is only 6%. The potential for growth of the natural gas market in India is tremendous; however, this is a very price sensitive market as the ability of customers to pay differs between sectors. The power generation and fertiliser sectors are the main consumers. Fertiliser producers are subsidised by the government and have limited ability to absorb higher prices. In the power generation sector, gas has to compete against coal for base-load generation. Any change in the power sector or in coal markets will have a huge impact on whether gas is used as a base-load option or for peak purposes, and therefore on future gas demand in the power sector. City gas and industrial users show greater price flexibility, but they are still emerging markets. Historically, gas had been allocated in priority to fertiliser and power plants, while city gas, compressed natural gas (CNG) and industrial had the remainder. The gas price increase will hit the fertiliser sector?s profitability by increasing working-capital requirements, which is also facing higher import costs due to rising crude oil prices. Auto gas fuel prices may be increased but should remain competitive against liquid fuels, albeit with a reduced differential as liquid auto fuel prices also rise with increasing crude oil prices. The cost of power generated by gas-based power plants will increase, further affecting their utilisation.

Keywords: Gas Prices, VAR (Vector Auto Regression), ARIMA-GARCH (Auto Regressive Integrated Moving Average-Generalized Autoregressive Conditional Heteroscedasticity), ARCH GARCH Volatility for Gas prices, Forecasting

Edition: Volume 12 Issue 9, September 2023

Pages: 695 - 715

DOI: https://www.doi.org/10.21275/SR23906152103

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