Natural gas has emerged as the most preferred fuel due to its inherent environmentally benign nature, greater efficiency and cost effectiveness. Natural gas is used in a variety of applications, such as feedstock in fertilizer and petrochemical industry and as fuel in the power generation, manufacturing of steel, textile, ceramic, glass and other industrial products.
Natural Gas is a major source of CNG (transportation fuel) and is an essential raw material for production of electricity, fertilizers and plastics.
Natural Gas, if used as a household fuel (i.e. piped natural gas), can replace LPG and SKO and if used in transportation as CNG, can replace MS & HSD. Since LPG, SKO, MS and HSD are currently price-controlled and subsidized, their replacement by Natural Gas would help in reducing the Government's outlays on subsidies to the Oil and Gas sector.
As full substitution is not possible in the near future, the consumption of MS and HSD will nevertheless grow in line with the overall increase in demand for these products.
Duty structure
Excise duty for Natural gas stands nil while custom duty stands at 5%. However excise duty on Compressed Natural gas is 14% and custom duty is 5% along with 14% additional custom duty.
Industry expectations
The industry expects Natural gas to be in the list of declared goods and hence should be taxed at the rate of 4%. Currently Natural gas is exempt from CENVAT at the Central level because of the importance of Natural Gas in the development of the economy but states levy a high rate of VAT of 12.5% on Natural gas.
The industry seeks clarity on tax breaks under Sec 80-IB on Natural gas produced under NELP I-VIII. Currently tax breaks are provided for gas produced only under NELP VIII.
- Industry expects customs duty on LNG to be made nil from 5%.
- Increase in APM gas price
- Analysts/market expectations
If Natural gas is included in the list of declared goods, it will primarily benefit Reliance Industries and ONGC besides gas transportation companies like GAIL, Gujarat Gas, Indraprastha gas and Gujarat State Petronet.
Stock to watch
Reliance Industries, GAIL, Gujarat Gas Company, Indraprastha Gas, Gujarat state Petronet, ONGC
Outlook
Financial Year 2009-10 was a significant year for domestic Natural gas with KG basin gas production started from April 1, 2009. Domestic Natural gas production rose a significant 35% for April-December 2009 to 33846 million cubic meters compared to corresponding previous year period mainly on account of 132% rise in Natural gas production by private players to 14564 million cubic meters.
In order to optimize utilization of natural gas in the country, an in principle decision was taken to promote national gas grid on the pattern of national highways of the country. This helped connect various sources of natural gas to different demand centers all over the country.
A road map was also formulated during the year to substantially expand the City Gas Distribution (CGD) by identifying over 200 cities for CGD projects. Further, an Empowered Group of Ministers (EGoM) decided to allocate an additional quantity of 61.6 Million Metric Standard Cubic Metre Per Day (MMSCMD) gas on firm basis and 30 MMSCMD on fall back basis to various priority sectors from KG D-6 field in October this year.
Seeing the greater importance of Natural gas as cheaper and greener fuel along with increased availability, it is finding more space in attention. A favorable policy document from government will help in more exploration and finding of Natural gas and contain the pace of increase in crude oil imports.
