Livemint: Gas pricing: What India can learn from the shale revolution

In a market, prices are set by consumer demand. But not in India, where panels upon panels are required to decide what the price of natural gas should be. Last evening, another such body recommended the right price to attract investors. It was in the 1990s that the government first lured investors with the promise of allowing free pricing, but eventually reneged on the promise. Thus, except for companies like Reliance, which have already invested in developing existing blocks, perhaps no investor would even consider putting money into India’s gas fields.

The country’s pathetic record in developing its energy market is in direct contrast to the amazing success of the shale gas industry in the US. For starters, the absence of price controls in the US energy market has allowed the price system to do what it does best: signal consumer demand. Investors have responded with enthusiasm to satisfy demand. But more importantly, the shale gas revolution, as it is rightly called given how it has drastically reduced America’s dependence on fuel imports, was built on a system of property rights unique to the country.

In line with the old common law principle, “Whoever owns the soil, it’s theirs up to heaven and down to hell,” the US allows private ownership of sub-surface minerals. This has allowed private owners motivated completely by profits (not phony slogans like national energy security) to exploit shale reserves without any bureaucratic hindrance. Early entrepreneurs who recognized the potential of shale gas were free to either buy or lease rights over shale gas deposits from the owners of the land rather than knocking on the doors of bureaucrats to obtain licences. MORE