Emergence of Natural Gas in India

Gail(India)Limited16bhikaji camaplace

RK PuramNEW DELHI

Industry mentor Lokesh Gairola Submitted by-Chief Manager(Marketing) Ashish Tahiliani GAIL Amity University Noida

Project Report Approval Sheet

This is to certified that the project entitled ldquo Emergence of Natural Gas in Indiardquo was completed by MrAshish Tahiliani under my guidance during the period wef 13 th May 2009 to 13 th July 2009 The same is hereby approved

Lokesh Gairola Chief Manager (Marketing) 16 bhikaji cama place RkPuram New Delhi

ACKNOWLEDGEMENT

I express my sincere gratitude to my industry guide Mr LOKESH GAIROLA Chief Manager (marketing) GAIL for his able guidance continuous support and cooperation throughout my project without which the present work would not have been possible

I would also like to thank the entire team of GAIL for the constant support and help in the successful completion of my project

Also I am thankful to my faculty guide Mr VIVEK KUMAR of my institute for his continued guidance and invaluable encouragement

Ashish Tahiliani

Abstract

Gas occupies about 9 of the total energy basket of the country However the scenario is fast changing in the country largely because of the expected increase in the availability of natural gas in the country

Presently fertilizers and power sectors continue to be the major consumers of natural gas at 33 and 45 respectively PMO has directed that the fertilizers sector should get the highest priority in allocation of natural gas It has also been directed that the power sector should be encouraged to rely more on natural gas for new capacities

At present there is an acute shortage of natural gas in the country As against the current estimated demand of about 180 MMSCMD the availability is around 120 MMSCMD Presently gas supply is being made from the domestic fields of ONGC OIL Private JV operators and from the import of LNG

Government of India has adopted a multi-pronged strategy to augment gas supplies and bridge the gap between supply and demand for the domestic market these cover-

1 Intensification of domestic EampP activities2 Exploitation of unconventional sources like Coal Bed Methane(CBM)3 Underground coal gasification4 Implementation of Natural Gas Hydrates Programme (NGHP) for evaluation of

hydrate resources and their possible commercial exploitation5 LNG Imports6 Gas sourcing through transnational gas pipelines

Demand-Supply Gap for Natural Gas

The gap in demand and supply of natural gas under normal scenario for a year as a percentage of total supply ranges from 64 to 158 of total supply for that year reflecting the scope of imports in the country The shortfall of domestic supplies will primarily be met with LNG imports The total LNG imports in the country are projected to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG as percentage of total demand in the country ranges from 17 in 2008 to around 30 in 2012 Thus despite imports of LNG India will still face short supply of gas to meet its demand The increased availability of natural gas will have a positive impact on the economic growth of the country Natural gas is a relatively clean fuel and has advantages over other fuels Additionally availability of this resource should be used in a judicious manner The necessary infrastructure for transportation of gas from production centers to different consumption centers is also being put in place by different agencies There is a need to closely monitor the firming up of demand estimates by various sectors so that the available gas is used as per the production plan in a timely manner

Table of content

Chapter Content Page no

Abstract 1 About the company

Joint ventures and Subsidiaries Future plans of Gail wrt Natural Gas

2 Reforms of Natural Gas Industry Objective of the project 3 Introduction of the project

Indiarsquos energy mix Introduction of Natural gas Environmental scanning of natural gas

sector Natural gas outlook

4 Research Methodology 5 Data analysis and Interpretation

Findings 6 Recommendation and conclusion Scope of Further study 7 Annexure

Questionnaire Personal interview Conversion table Projections by different agencies

8 Reference

ABOUT THE COMPANY

GAIL (India) Ltdis one of the outstanding public enterprises in the country today It is one of the ldquoNAVRATNA ENTERPRISESrdquo and ranks among the top five companies in India It is Indiarsquos flagship natural gas company integrated all aspects of the natural gas value chain (including Exploration and Production Processing Transmission Distribution and Marketing) and its related services In a rapidly changing scenario GAIL (India) is spearheading the move to a new era of clean fuel industrialization creating a quadrilateral of green energy corridors that connect major consumption centers in India with major gas fields LNG terminals and other cross border gas sourcing points GAIL is Also expanding its business ton become a player in International market GAIL has completed nearly two and half decades of a eventful journey Starting with a natural gas transmission company it is today an integrated energy company along the natural gas value chain with global footprints having started as a gas transmission company during the late eighties it grew organically over the years by building a large network of natural gas trunk pipelines covering a length of around 7000 Km Today Gail has interests in the business of natural gas LPG liquid hydrocarbons and petrochemicals the latter being value added products The company has also entered in telecom sector by leasing bandwidth available through the OFC which is laid along the gas pipelines for their operations and maintenance GAIL has also diversified into exploration and production city gas distribution and is steadily developing an overseas presence etcGAIL is one of the leading public enterprises with a consistently excellent financial track record Turnover during the last ten years has shown a compounded annual growth rate of 13 percent The company recorded a turnover of rs18008 billion and a profit after tax of Rs2601 billion in FY 2007-08The Company has also received authorization from the Ministry of Petroleum and Natural gas to lay 5 new pipelines and in addition augmentation of 3 existing pipelines is also being taken up This will lead to doubling of pipelines length and transmission capacity in the next 4 to 5 years

VISION- Be a leading company in natural gas and beyond with global focus committed to customer care value creation for all stakeholders and environmental responsibility

MISSION- Accelerating and optimizing the effective and economic use of natural gas and its fractions to the benefit of national economy

MAJOR BUSINESS SEGMENTS

Natural gas

Petrochemicals

Exploration and production

LPG and other Liquid hydrocarbons

Telecommunication

HISTORY OF THE ORGANISATION

GAIL (India)Ltd(erstwhile Gas Authority of India Ltd)Indiarsquos principal gas

transmission and marketing company was set up by the Government Of India in August

1984 to create gas sector infrastructure for sustained development of the natural gas

sector in the country

The 2800 Kms Hazira-Vijaipur (HVJ) pipeline became operational in 1991During 1991-

1993 three LPG plants were constructed and some regional pipelines acquired enabling

GAIL to begin its regional gas distribution in various parts of India

GAIL began its city gas distribution in Delhi in 1997 by setting up nine CNG stations

catering to the cityrsquos vast public transport fleet

In 1999 GAIL set up northern Indiarsquos only petrochemical plant in Pata

GAIL became the first infrastructural provider category II Licensee and signed the

countryrsquos first service level agreement for leasing bandwidth in the Delhi-Vijaipur in

2001through its telecom business GAILTELIn 2001GAIL commissioned worlds

longest and India first cross country LPG Transmission Pipeline from Jamnagar to Loni

GAIL today has reached new milestone with its strategic diversification into

Petrochemicals Telecom and Liquid hydrocarbons besides gas infrastructure The

company has also extended its presence in Power Liquefied Natural Gas re-gasification

city gas distribution and exploration amp Production through equity and joint ventures

participations Incorporating the new found energy into its corporate identity Gas

Authority of India was renamed GAIL (India) Limited on November 22 2002

GROWTH

1990-91

2800Kms Hazira-Vijaipur Jagdishpur (HVJ) pipeline becomes operational in 1991

LPG phase-I plant at Vijaipur commissioned in February 1991

1991-92

Phase-2 at LPG Vijaipur plant commissioned in Feb 1992

1992-93

LPG project at Vaghodia commissioned in Feb 1003

1994-95

Joint venture Agreement signed with British Gas on December 6 1994Mahanagar Gas Limited Incorporated to implement Bombay City Gas Distribution project

1997-98

Government of India grants Navratna status to Gail herby entrusting greater autonomy to Gail after restructuring of the Board

Gas processing units (GPU) offsite utilities of the petrochemical plant at Pata commissioned

1999-00

GAIL participates in NELP bidding by submitting offer for 7 blocks in association with ONGC amp IOC and Russian company GazpromGovernment of India approved award of 2 blocks to GAIL One with ONGC in Orissa offshore and another with Gazprom in Bengal Offshore

LPG plant at Pata with a designed capacity of 258 lacs TPA of LPG commissioned for commercial production in March 2000

2000-01

GAIL conceptualizes a National Gas Grid to connect the supply and demand centres in the country with high pressure cross country pipelines networks

The gas processing complex Gandhar begins production in March 2001The process LPG 043 Lacs MT of Pentane and SBP solvent

Jamnagar-Loni LPG Pipeline project the worlds longest and Indiarsquos first cross country LPG 1296 Km long pipeline which passes through GujratRajasthanHaryana and Delhi is completed The capacity of the pipelines in its first phase is 17 million TPA to be upgraded to 25 million TPA in the second phase

2001-02

GAIL picks up 12 equity in GSEGrsquos 156 MW power project in Gujarat as a strategic investment

Marketing functions is restructured and decentralize at zonal levels

GAILTEL phase-I commissioned creating an OFC based DWDM network connecting Delhi-Mumbai Delhi-Jaipur Delhi-Ahmmdabad Delhi-Vijaipur Meerat-Agra

2003-04

GAIL has an initial success in the form of significant gas find in the block A-1 in Myanmar and discovery of oil and gas in the Cambay block

GAIL successfully secures participation in 2 retail gas companies in Egypt Fayum Gas Company and Shell CNG

Platts declares GAIL as the first among Global Gas Utilities based on return on investment capital (ROIC) in its worldwide survey of Top 250 energy companies in 2004

Vizag ndash Secundrabad LPG pipeline the 580 km pipeline with the maximum throughput of 116 MMPTPA completed in June 2003

Bhagyanagar Gas Limited a joint venture of GAIL and HPCL incorporated in August 2003in the field of distribution and marketing of auto LPGCNG for vehicles and retailing of natural gas in the cities of Andhra Pradesh

Phase I and II of 8000 km network GAILTEL projects connecting Delhi Mumbai and 71 other cities completed This network provides a national communication backbone

2004-05

Incorporation of GAIL Global Singapore PVTLTD

Acquisition of 15 equity stake in Natural Gas Egypt

Agreement signed for acquisition of 9 equity stake in China Gas Holding LTD a joint venture for city gas projects in 42 cities of China

Tripura Natural gas CoLtd a joint venture for city gas project in Tripura incorporated

UP central gas Ltd a joint venture for city gas project with BPCL in Kanpur incorporated

De-bottlenecking of LLDPE swing unit from 150000 MT to 210000 MT at GAIL Pata

Gas management system commissioned for HVJ DVPL and SGPL

Commissioning of South Gujarat pipeline network

Commissioning of Vizag-Secundrabad LPG pipeline

2005-06

GAIL ilex Australia Videocon HPCL and BPCL consortium awarded Blocks no 56 in Oman

GAIL was ranked 11th among top 15 of the worlds largest listed gas utilities firms in the oil and gas industry in terms of market capitalization for the year 2005

GAIL gets Golden Icon award for e-governance

Inauguration of the National gas management centre (NGMC) of GAIL at NOIDA

GAIL bagged two awards for excellence in cost management from the Institute of Cost and Works Accounts of India (ICWAI)

2006-07

Mechanical completion of new HDPE (High Density Polyethylene) plant with a capacity of 100000 TPA at Petrochemical complex at PATA

Commissioning of Dahaj-Panvel pipeline

Brahmaputra cracker and polymer Limited-Joint venture company led by GAIL formed for implementing Assam gas cracker projects

GAIL acquires stake in A7 Myanmar block

GAILrsquos Vijaipur- Kota pipeline commissioned

GAILrsquos Kailaras- Malanpur pipeline commissioned

GAILrsquos consortium wins 3 CBM blocks in rd round of bidding

GAIL HPCL joint venture-Avantika gas limited incorporated

GAIL ONGC ink gas supply agreement

GAIL brings Indiarsquos first spot LNG cargo at Dahej

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Project Report Approval Sheet

This is to certified that the project entitled ldquo Emergence of Natural Gas in Indiardquo was completed by MrAshish Tahiliani under my guidance during the period wef 13 th May 2009 to 13 th July 2009 The same is hereby approved

Lokesh Gairola Chief Manager (Marketing) 16 bhikaji cama place RkPuram New Delhi

ACKNOWLEDGEMENT

I express my sincere gratitude to my industry guide Mr LOKESH GAIROLA Chief Manager (marketing) GAIL for his able guidance continuous support and cooperation throughout my project without which the present work would not have been possible

I would also like to thank the entire team of GAIL for the constant support and help in the successful completion of my project

Also I am thankful to my faculty guide Mr VIVEK KUMAR of my institute for his continued guidance and invaluable encouragement

Ashish Tahiliani

Abstract

Gas occupies about 9 of the total energy basket of the country However the scenario is fast changing in the country largely because of the expected increase in the availability of natural gas in the country

Presently fertilizers and power sectors continue to be the major consumers of natural gas at 33 and 45 respectively PMO has directed that the fertilizers sector should get the highest priority in allocation of natural gas It has also been directed that the power sector should be encouraged to rely more on natural gas for new capacities

At present there is an acute shortage of natural gas in the country As against the current estimated demand of about 180 MMSCMD the availability is around 120 MMSCMD Presently gas supply is being made from the domestic fields of ONGC OIL Private JV operators and from the import of LNG

Government of India has adopted a multi-pronged strategy to augment gas supplies and bridge the gap between supply and demand for the domestic market these cover-

1 Intensification of domestic EampP activities2 Exploitation of unconventional sources like Coal Bed Methane(CBM)3 Underground coal gasification4 Implementation of Natural Gas Hydrates Programme (NGHP) for evaluation of

hydrate resources and their possible commercial exploitation5 LNG Imports6 Gas sourcing through transnational gas pipelines

Demand-Supply Gap for Natural Gas

The gap in demand and supply of natural gas under normal scenario for a year as a percentage of total supply ranges from 64 to 158 of total supply for that year reflecting the scope of imports in the country The shortfall of domestic supplies will primarily be met with LNG imports The total LNG imports in the country are projected to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG as percentage of total demand in the country ranges from 17 in 2008 to around 30 in 2012 Thus despite imports of LNG India will still face short supply of gas to meet its demand The increased availability of natural gas will have a positive impact on the economic growth of the country Natural gas is a relatively clean fuel and has advantages over other fuels Additionally availability of this resource should be used in a judicious manner The necessary infrastructure for transportation of gas from production centers to different consumption centers is also being put in place by different agencies There is a need to closely monitor the firming up of demand estimates by various sectors so that the available gas is used as per the production plan in a timely manner

Table of content

Chapter Content Page no

Abstract 1 About the company

Joint ventures and Subsidiaries Future plans of Gail wrt Natural Gas

2 Reforms of Natural Gas Industry Objective of the project 3 Introduction of the project

Indiarsquos energy mix Introduction of Natural gas Environmental scanning of natural gas

sector Natural gas outlook

4 Research Methodology 5 Data analysis and Interpretation

Findings 6 Recommendation and conclusion Scope of Further study 7 Annexure

Questionnaire Personal interview Conversion table Projections by different agencies

8 Reference

ABOUT THE COMPANY

GAIL (India) Ltdis one of the outstanding public enterprises in the country today It is one of the ldquoNAVRATNA ENTERPRISESrdquo and ranks among the top five companies in India It is Indiarsquos flagship natural gas company integrated all aspects of the natural gas value chain (including Exploration and Production Processing Transmission Distribution and Marketing) and its related services In a rapidly changing scenario GAIL (India) is spearheading the move to a new era of clean fuel industrialization creating a quadrilateral of green energy corridors that connect major consumption centers in India with major gas fields LNG terminals and other cross border gas sourcing points GAIL is Also expanding its business ton become a player in International market GAIL has completed nearly two and half decades of a eventful journey Starting with a natural gas transmission company it is today an integrated energy company along the natural gas value chain with global footprints having started as a gas transmission company during the late eighties it grew organically over the years by building a large network of natural gas trunk pipelines covering a length of around 7000 Km Today Gail has interests in the business of natural gas LPG liquid hydrocarbons and petrochemicals the latter being value added products The company has also entered in telecom sector by leasing bandwidth available through the OFC which is laid along the gas pipelines for their operations and maintenance GAIL has also diversified into exploration and production city gas distribution and is steadily developing an overseas presence etcGAIL is one of the leading public enterprises with a consistently excellent financial track record Turnover during the last ten years has shown a compounded annual growth rate of 13 percent The company recorded a turnover of rs18008 billion and a profit after tax of Rs2601 billion in FY 2007-08The Company has also received authorization from the Ministry of Petroleum and Natural gas to lay 5 new pipelines and in addition augmentation of 3 existing pipelines is also being taken up This will lead to doubling of pipelines length and transmission capacity in the next 4 to 5 years

VISION- Be a leading company in natural gas and beyond with global focus committed to customer care value creation for all stakeholders and environmental responsibility

MISSION- Accelerating and optimizing the effective and economic use of natural gas and its fractions to the benefit of national economy

MAJOR BUSINESS SEGMENTS

Natural gas

Petrochemicals

Exploration and production

LPG and other Liquid hydrocarbons

Telecommunication

HISTORY OF THE ORGANISATION

GAIL (India)Ltd(erstwhile Gas Authority of India Ltd)Indiarsquos principal gas

transmission and marketing company was set up by the Government Of India in August

1984 to create gas sector infrastructure for sustained development of the natural gas

sector in the country

The 2800 Kms Hazira-Vijaipur (HVJ) pipeline became operational in 1991During 1991-

1993 three LPG plants were constructed and some regional pipelines acquired enabling

GAIL to begin its regional gas distribution in various parts of India

GAIL began its city gas distribution in Delhi in 1997 by setting up nine CNG stations

catering to the cityrsquos vast public transport fleet

In 1999 GAIL set up northern Indiarsquos only petrochemical plant in Pata

GAIL became the first infrastructural provider category II Licensee and signed the

countryrsquos first service level agreement for leasing bandwidth in the Delhi-Vijaipur in

2001through its telecom business GAILTELIn 2001GAIL commissioned worlds

longest and India first cross country LPG Transmission Pipeline from Jamnagar to Loni

GAIL today has reached new milestone with its strategic diversification into

Petrochemicals Telecom and Liquid hydrocarbons besides gas infrastructure The

company has also extended its presence in Power Liquefied Natural Gas re-gasification

city gas distribution and exploration amp Production through equity and joint ventures

participations Incorporating the new found energy into its corporate identity Gas

Authority of India was renamed GAIL (India) Limited on November 22 2002

GROWTH

1990-91

2800Kms Hazira-Vijaipur Jagdishpur (HVJ) pipeline becomes operational in 1991

LPG phase-I plant at Vijaipur commissioned in February 1991

1991-92

Phase-2 at LPG Vijaipur plant commissioned in Feb 1992

1992-93

LPG project at Vaghodia commissioned in Feb 1003

1994-95

Joint venture Agreement signed with British Gas on December 6 1994Mahanagar Gas Limited Incorporated to implement Bombay City Gas Distribution project

1997-98

Government of India grants Navratna status to Gail herby entrusting greater autonomy to Gail after restructuring of the Board

Gas processing units (GPU) offsite utilities of the petrochemical plant at Pata commissioned

1999-00

GAIL participates in NELP bidding by submitting offer for 7 blocks in association with ONGC amp IOC and Russian company GazpromGovernment of India approved award of 2 blocks to GAIL One with ONGC in Orissa offshore and another with Gazprom in Bengal Offshore

LPG plant at Pata with a designed capacity of 258 lacs TPA of LPG commissioned for commercial production in March 2000

2000-01

GAIL conceptualizes a National Gas Grid to connect the supply and demand centres in the country with high pressure cross country pipelines networks

The gas processing complex Gandhar begins production in March 2001The process LPG 043 Lacs MT of Pentane and SBP solvent

Jamnagar-Loni LPG Pipeline project the worlds longest and Indiarsquos first cross country LPG 1296 Km long pipeline which passes through GujratRajasthanHaryana and Delhi is completed The capacity of the pipelines in its first phase is 17 million TPA to be upgraded to 25 million TPA in the second phase

2001-02

GAIL picks up 12 equity in GSEGrsquos 156 MW power project in Gujarat as a strategic investment

Marketing functions is restructured and decentralize at zonal levels

GAILTEL phase-I commissioned creating an OFC based DWDM network connecting Delhi-Mumbai Delhi-Jaipur Delhi-Ahmmdabad Delhi-Vijaipur Meerat-Agra

2003-04

GAIL has an initial success in the form of significant gas find in the block A-1 in Myanmar and discovery of oil and gas in the Cambay block

GAIL successfully secures participation in 2 retail gas companies in Egypt Fayum Gas Company and Shell CNG

Platts declares GAIL as the first among Global Gas Utilities based on return on investment capital (ROIC) in its worldwide survey of Top 250 energy companies in 2004

Vizag ndash Secundrabad LPG pipeline the 580 km pipeline with the maximum throughput of 116 MMPTPA completed in June 2003

Bhagyanagar Gas Limited a joint venture of GAIL and HPCL incorporated in August 2003in the field of distribution and marketing of auto LPGCNG for vehicles and retailing of natural gas in the cities of Andhra Pradesh

Phase I and II of 8000 km network GAILTEL projects connecting Delhi Mumbai and 71 other cities completed This network provides a national communication backbone

2004-05

Incorporation of GAIL Global Singapore PVTLTD

Acquisition of 15 equity stake in Natural Gas Egypt

Agreement signed for acquisition of 9 equity stake in China Gas Holding LTD a joint venture for city gas projects in 42 cities of China

Tripura Natural gas CoLtd a joint venture for city gas project in Tripura incorporated

UP central gas Ltd a joint venture for city gas project with BPCL in Kanpur incorporated

De-bottlenecking of LLDPE swing unit from 150000 MT to 210000 MT at GAIL Pata

Gas management system commissioned for HVJ DVPL and SGPL

Commissioning of South Gujarat pipeline network

Commissioning of Vizag-Secundrabad LPG pipeline

2005-06

GAIL ilex Australia Videocon HPCL and BPCL consortium awarded Blocks no 56 in Oman

GAIL was ranked 11th among top 15 of the worlds largest listed gas utilities firms in the oil and gas industry in terms of market capitalization for the year 2005

GAIL gets Golden Icon award for e-governance

Inauguration of the National gas management centre (NGMC) of GAIL at NOIDA

GAIL bagged two awards for excellence in cost management from the Institute of Cost and Works Accounts of India (ICWAI)

2006-07

Mechanical completion of new HDPE (High Density Polyethylene) plant with a capacity of 100000 TPA at Petrochemical complex at PATA

Commissioning of Dahaj-Panvel pipeline

Brahmaputra cracker and polymer Limited-Joint venture company led by GAIL formed for implementing Assam gas cracker projects

GAIL acquires stake in A7 Myanmar block

GAILrsquos Vijaipur- Kota pipeline commissioned

GAILrsquos Kailaras- Malanpur pipeline commissioned

GAILrsquos consortium wins 3 CBM blocks in rd round of bidding

GAIL HPCL joint venture-Avantika gas limited incorporated

GAIL ONGC ink gas supply agreement

GAIL brings Indiarsquos first spot LNG cargo at Dahej

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

ACKNOWLEDGEMENT

I express my sincere gratitude to my industry guide Mr LOKESH GAIROLA Chief Manager (marketing) GAIL for his able guidance continuous support and cooperation throughout my project without which the present work would not have been possible

I would also like to thank the entire team of GAIL for the constant support and help in the successful completion of my project

Also I am thankful to my faculty guide Mr VIVEK KUMAR of my institute for his continued guidance and invaluable encouragement

Ashish Tahiliani

Abstract

Gas occupies about 9 of the total energy basket of the country However the scenario is fast changing in the country largely because of the expected increase in the availability of natural gas in the country

Presently fertilizers and power sectors continue to be the major consumers of natural gas at 33 and 45 respectively PMO has directed that the fertilizers sector should get the highest priority in allocation of natural gas It has also been directed that the power sector should be encouraged to rely more on natural gas for new capacities

At present there is an acute shortage of natural gas in the country As against the current estimated demand of about 180 MMSCMD the availability is around 120 MMSCMD Presently gas supply is being made from the domestic fields of ONGC OIL Private JV operators and from the import of LNG

Government of India has adopted a multi-pronged strategy to augment gas supplies and bridge the gap between supply and demand for the domestic market these cover-

1 Intensification of domestic EampP activities2 Exploitation of unconventional sources like Coal Bed Methane(CBM)3 Underground coal gasification4 Implementation of Natural Gas Hydrates Programme (NGHP) for evaluation of

hydrate resources and their possible commercial exploitation5 LNG Imports6 Gas sourcing through transnational gas pipelines

Demand-Supply Gap for Natural Gas

The gap in demand and supply of natural gas under normal scenario for a year as a percentage of total supply ranges from 64 to 158 of total supply for that year reflecting the scope of imports in the country The shortfall of domestic supplies will primarily be met with LNG imports The total LNG imports in the country are projected to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG as percentage of total demand in the country ranges from 17 in 2008 to around 30 in 2012 Thus despite imports of LNG India will still face short supply of gas to meet its demand The increased availability of natural gas will have a positive impact on the economic growth of the country Natural gas is a relatively clean fuel and has advantages over other fuels Additionally availability of this resource should be used in a judicious manner The necessary infrastructure for transportation of gas from production centers to different consumption centers is also being put in place by different agencies There is a need to closely monitor the firming up of demand estimates by various sectors so that the available gas is used as per the production plan in a timely manner

Table of content

Chapter Content Page no

Abstract 1 About the company

Joint ventures and Subsidiaries Future plans of Gail wrt Natural Gas

2 Reforms of Natural Gas Industry Objective of the project 3 Introduction of the project

Indiarsquos energy mix Introduction of Natural gas Environmental scanning of natural gas

sector Natural gas outlook

4 Research Methodology 5 Data analysis and Interpretation

Findings 6 Recommendation and conclusion Scope of Further study 7 Annexure

Questionnaire Personal interview Conversion table Projections by different agencies

8 Reference

ABOUT THE COMPANY

GAIL (India) Ltdis one of the outstanding public enterprises in the country today It is one of the ldquoNAVRATNA ENTERPRISESrdquo and ranks among the top five companies in India It is Indiarsquos flagship natural gas company integrated all aspects of the natural gas value chain (including Exploration and Production Processing Transmission Distribution and Marketing) and its related services In a rapidly changing scenario GAIL (India) is spearheading the move to a new era of clean fuel industrialization creating a quadrilateral of green energy corridors that connect major consumption centers in India with major gas fields LNG terminals and other cross border gas sourcing points GAIL is Also expanding its business ton become a player in International market GAIL has completed nearly two and half decades of a eventful journey Starting with a natural gas transmission company it is today an integrated energy company along the natural gas value chain with global footprints having started as a gas transmission company during the late eighties it grew organically over the years by building a large network of natural gas trunk pipelines covering a length of around 7000 Km Today Gail has interests in the business of natural gas LPG liquid hydrocarbons and petrochemicals the latter being value added products The company has also entered in telecom sector by leasing bandwidth available through the OFC which is laid along the gas pipelines for their operations and maintenance GAIL has also diversified into exploration and production city gas distribution and is steadily developing an overseas presence etcGAIL is one of the leading public enterprises with a consistently excellent financial track record Turnover during the last ten years has shown a compounded annual growth rate of 13 percent The company recorded a turnover of rs18008 billion and a profit after tax of Rs2601 billion in FY 2007-08The Company has also received authorization from the Ministry of Petroleum and Natural gas to lay 5 new pipelines and in addition augmentation of 3 existing pipelines is also being taken up This will lead to doubling of pipelines length and transmission capacity in the next 4 to 5 years

VISION- Be a leading company in natural gas and beyond with global focus committed to customer care value creation for all stakeholders and environmental responsibility

MISSION- Accelerating and optimizing the effective and economic use of natural gas and its fractions to the benefit of national economy

MAJOR BUSINESS SEGMENTS

Natural gas

Petrochemicals

Exploration and production

LPG and other Liquid hydrocarbons

Telecommunication

HISTORY OF THE ORGANISATION

GAIL (India)Ltd(erstwhile Gas Authority of India Ltd)Indiarsquos principal gas

transmission and marketing company was set up by the Government Of India in August

1984 to create gas sector infrastructure for sustained development of the natural gas

sector in the country

The 2800 Kms Hazira-Vijaipur (HVJ) pipeline became operational in 1991During 1991-

1993 three LPG plants were constructed and some regional pipelines acquired enabling

GAIL to begin its regional gas distribution in various parts of India

GAIL began its city gas distribution in Delhi in 1997 by setting up nine CNG stations

catering to the cityrsquos vast public transport fleet

In 1999 GAIL set up northern Indiarsquos only petrochemical plant in Pata

GAIL became the first infrastructural provider category II Licensee and signed the

countryrsquos first service level agreement for leasing bandwidth in the Delhi-Vijaipur in

2001through its telecom business GAILTELIn 2001GAIL commissioned worlds

longest and India first cross country LPG Transmission Pipeline from Jamnagar to Loni

GAIL today has reached new milestone with its strategic diversification into

Petrochemicals Telecom and Liquid hydrocarbons besides gas infrastructure The

company has also extended its presence in Power Liquefied Natural Gas re-gasification

city gas distribution and exploration amp Production through equity and joint ventures

participations Incorporating the new found energy into its corporate identity Gas

Authority of India was renamed GAIL (India) Limited on November 22 2002

GROWTH

1990-91

2800Kms Hazira-Vijaipur Jagdishpur (HVJ) pipeline becomes operational in 1991

LPG phase-I plant at Vijaipur commissioned in February 1991

1991-92

Phase-2 at LPG Vijaipur plant commissioned in Feb 1992

1992-93

LPG project at Vaghodia commissioned in Feb 1003

1994-95

Joint venture Agreement signed with British Gas on December 6 1994Mahanagar Gas Limited Incorporated to implement Bombay City Gas Distribution project

1997-98

Government of India grants Navratna status to Gail herby entrusting greater autonomy to Gail after restructuring of the Board

Gas processing units (GPU) offsite utilities of the petrochemical plant at Pata commissioned

1999-00

GAIL participates in NELP bidding by submitting offer for 7 blocks in association with ONGC amp IOC and Russian company GazpromGovernment of India approved award of 2 blocks to GAIL One with ONGC in Orissa offshore and another with Gazprom in Bengal Offshore

LPG plant at Pata with a designed capacity of 258 lacs TPA of LPG commissioned for commercial production in March 2000

2000-01

GAIL conceptualizes a National Gas Grid to connect the supply and demand centres in the country with high pressure cross country pipelines networks

The gas processing complex Gandhar begins production in March 2001The process LPG 043 Lacs MT of Pentane and SBP solvent

Jamnagar-Loni LPG Pipeline project the worlds longest and Indiarsquos first cross country LPG 1296 Km long pipeline which passes through GujratRajasthanHaryana and Delhi is completed The capacity of the pipelines in its first phase is 17 million TPA to be upgraded to 25 million TPA in the second phase

2001-02

GAIL picks up 12 equity in GSEGrsquos 156 MW power project in Gujarat as a strategic investment

Marketing functions is restructured and decentralize at zonal levels

GAILTEL phase-I commissioned creating an OFC based DWDM network connecting Delhi-Mumbai Delhi-Jaipur Delhi-Ahmmdabad Delhi-Vijaipur Meerat-Agra

2003-04

GAIL has an initial success in the form of significant gas find in the block A-1 in Myanmar and discovery of oil and gas in the Cambay block

GAIL successfully secures participation in 2 retail gas companies in Egypt Fayum Gas Company and Shell CNG

Platts declares GAIL as the first among Global Gas Utilities based on return on investment capital (ROIC) in its worldwide survey of Top 250 energy companies in 2004

Vizag ndash Secundrabad LPG pipeline the 580 km pipeline with the maximum throughput of 116 MMPTPA completed in June 2003

Bhagyanagar Gas Limited a joint venture of GAIL and HPCL incorporated in August 2003in the field of distribution and marketing of auto LPGCNG for vehicles and retailing of natural gas in the cities of Andhra Pradesh

Phase I and II of 8000 km network GAILTEL projects connecting Delhi Mumbai and 71 other cities completed This network provides a national communication backbone

2004-05

Incorporation of GAIL Global Singapore PVTLTD

Acquisition of 15 equity stake in Natural Gas Egypt

Agreement signed for acquisition of 9 equity stake in China Gas Holding LTD a joint venture for city gas projects in 42 cities of China

Tripura Natural gas CoLtd a joint venture for city gas project in Tripura incorporated

UP central gas Ltd a joint venture for city gas project with BPCL in Kanpur incorporated

De-bottlenecking of LLDPE swing unit from 150000 MT to 210000 MT at GAIL Pata

Gas management system commissioned for HVJ DVPL and SGPL

Commissioning of South Gujarat pipeline network

Commissioning of Vizag-Secundrabad LPG pipeline

2005-06

GAIL ilex Australia Videocon HPCL and BPCL consortium awarded Blocks no 56 in Oman

GAIL was ranked 11th among top 15 of the worlds largest listed gas utilities firms in the oil and gas industry in terms of market capitalization for the year 2005

GAIL gets Golden Icon award for e-governance

Inauguration of the National gas management centre (NGMC) of GAIL at NOIDA

GAIL bagged two awards for excellence in cost management from the Institute of Cost and Works Accounts of India (ICWAI)

2006-07

Mechanical completion of new HDPE (High Density Polyethylene) plant with a capacity of 100000 TPA at Petrochemical complex at PATA

Commissioning of Dahaj-Panvel pipeline

Brahmaputra cracker and polymer Limited-Joint venture company led by GAIL formed for implementing Assam gas cracker projects

GAIL acquires stake in A7 Myanmar block

GAILrsquos Vijaipur- Kota pipeline commissioned

GAILrsquos Kailaras- Malanpur pipeline commissioned

GAILrsquos consortium wins 3 CBM blocks in rd round of bidding

GAIL HPCL joint venture-Avantika gas limited incorporated

GAIL ONGC ink gas supply agreement

GAIL brings Indiarsquos first spot LNG cargo at Dahej

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Abstract

Gas occupies about 9 of the total energy basket of the country However the scenario is fast changing in the country largely because of the expected increase in the availability of natural gas in the country

Presently fertilizers and power sectors continue to be the major consumers of natural gas at 33 and 45 respectively PMO has directed that the fertilizers sector should get the highest priority in allocation of natural gas It has also been directed that the power sector should be encouraged to rely more on natural gas for new capacities

At present there is an acute shortage of natural gas in the country As against the current estimated demand of about 180 MMSCMD the availability is around 120 MMSCMD Presently gas supply is being made from the domestic fields of ONGC OIL Private JV operators and from the import of LNG

Government of India has adopted a multi-pronged strategy to augment gas supplies and bridge the gap between supply and demand for the domestic market these cover-

1 Intensification of domestic EampP activities2 Exploitation of unconventional sources like Coal Bed Methane(CBM)3 Underground coal gasification4 Implementation of Natural Gas Hydrates Programme (NGHP) for evaluation of

hydrate resources and their possible commercial exploitation5 LNG Imports6 Gas sourcing through transnational gas pipelines

Demand-Supply Gap for Natural Gas

The gap in demand and supply of natural gas under normal scenario for a year as a percentage of total supply ranges from 64 to 158 of total supply for that year reflecting the scope of imports in the country The shortfall of domestic supplies will primarily be met with LNG imports The total LNG imports in the country are projected to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG as percentage of total demand in the country ranges from 17 in 2008 to around 30 in 2012 Thus despite imports of LNG India will still face short supply of gas to meet its demand The increased availability of natural gas will have a positive impact on the economic growth of the country Natural gas is a relatively clean fuel and has advantages over other fuels Additionally availability of this resource should be used in a judicious manner The necessary infrastructure for transportation of gas from production centers to different consumption centers is also being put in place by different agencies There is a need to closely monitor the firming up of demand estimates by various sectors so that the available gas is used as per the production plan in a timely manner

Table of content

Chapter Content Page no

Abstract 1 About the company

Joint ventures and Subsidiaries Future plans of Gail wrt Natural Gas

2 Reforms of Natural Gas Industry Objective of the project 3 Introduction of the project

Indiarsquos energy mix Introduction of Natural gas Environmental scanning of natural gas

sector Natural gas outlook

4 Research Methodology 5 Data analysis and Interpretation

Findings 6 Recommendation and conclusion Scope of Further study 7 Annexure

Questionnaire Personal interview Conversion table Projections by different agencies

8 Reference

ABOUT THE COMPANY

GAIL (India) Ltdis one of the outstanding public enterprises in the country today It is one of the ldquoNAVRATNA ENTERPRISESrdquo and ranks among the top five companies in India It is Indiarsquos flagship natural gas company integrated all aspects of the natural gas value chain (including Exploration and Production Processing Transmission Distribution and Marketing) and its related services In a rapidly changing scenario GAIL (India) is spearheading the move to a new era of clean fuel industrialization creating a quadrilateral of green energy corridors that connect major consumption centers in India with major gas fields LNG terminals and other cross border gas sourcing points GAIL is Also expanding its business ton become a player in International market GAIL has completed nearly two and half decades of a eventful journey Starting with a natural gas transmission company it is today an integrated energy company along the natural gas value chain with global footprints having started as a gas transmission company during the late eighties it grew organically over the years by building a large network of natural gas trunk pipelines covering a length of around 7000 Km Today Gail has interests in the business of natural gas LPG liquid hydrocarbons and petrochemicals the latter being value added products The company has also entered in telecom sector by leasing bandwidth available through the OFC which is laid along the gas pipelines for their operations and maintenance GAIL has also diversified into exploration and production city gas distribution and is steadily developing an overseas presence etcGAIL is one of the leading public enterprises with a consistently excellent financial track record Turnover during the last ten years has shown a compounded annual growth rate of 13 percent The company recorded a turnover of rs18008 billion and a profit after tax of Rs2601 billion in FY 2007-08The Company has also received authorization from the Ministry of Petroleum and Natural gas to lay 5 new pipelines and in addition augmentation of 3 existing pipelines is also being taken up This will lead to doubling of pipelines length and transmission capacity in the next 4 to 5 years

VISION- Be a leading company in natural gas and beyond with global focus committed to customer care value creation for all stakeholders and environmental responsibility

MISSION- Accelerating and optimizing the effective and economic use of natural gas and its fractions to the benefit of national economy

MAJOR BUSINESS SEGMENTS

Natural gas

Petrochemicals

Exploration and production

LPG and other Liquid hydrocarbons

Telecommunication

HISTORY OF THE ORGANISATION

GAIL (India)Ltd(erstwhile Gas Authority of India Ltd)Indiarsquos principal gas

transmission and marketing company was set up by the Government Of India in August

1984 to create gas sector infrastructure for sustained development of the natural gas

sector in the country

The 2800 Kms Hazira-Vijaipur (HVJ) pipeline became operational in 1991During 1991-

1993 three LPG plants were constructed and some regional pipelines acquired enabling

GAIL to begin its regional gas distribution in various parts of India

GAIL began its city gas distribution in Delhi in 1997 by setting up nine CNG stations

catering to the cityrsquos vast public transport fleet

In 1999 GAIL set up northern Indiarsquos only petrochemical plant in Pata

GAIL became the first infrastructural provider category II Licensee and signed the

countryrsquos first service level agreement for leasing bandwidth in the Delhi-Vijaipur in

2001through its telecom business GAILTELIn 2001GAIL commissioned worlds

longest and India first cross country LPG Transmission Pipeline from Jamnagar to Loni

GAIL today has reached new milestone with its strategic diversification into

Petrochemicals Telecom and Liquid hydrocarbons besides gas infrastructure The

company has also extended its presence in Power Liquefied Natural Gas re-gasification

city gas distribution and exploration amp Production through equity and joint ventures

participations Incorporating the new found energy into its corporate identity Gas

Authority of India was renamed GAIL (India) Limited on November 22 2002

GROWTH

1990-91

2800Kms Hazira-Vijaipur Jagdishpur (HVJ) pipeline becomes operational in 1991

LPG phase-I plant at Vijaipur commissioned in February 1991

1991-92

Phase-2 at LPG Vijaipur plant commissioned in Feb 1992

1992-93

LPG project at Vaghodia commissioned in Feb 1003

1994-95

Joint venture Agreement signed with British Gas on December 6 1994Mahanagar Gas Limited Incorporated to implement Bombay City Gas Distribution project

1997-98

Government of India grants Navratna status to Gail herby entrusting greater autonomy to Gail after restructuring of the Board

Gas processing units (GPU) offsite utilities of the petrochemical plant at Pata commissioned

1999-00

GAIL participates in NELP bidding by submitting offer for 7 blocks in association with ONGC amp IOC and Russian company GazpromGovernment of India approved award of 2 blocks to GAIL One with ONGC in Orissa offshore and another with Gazprom in Bengal Offshore

LPG plant at Pata with a designed capacity of 258 lacs TPA of LPG commissioned for commercial production in March 2000

2000-01

GAIL conceptualizes a National Gas Grid to connect the supply and demand centres in the country with high pressure cross country pipelines networks

The gas processing complex Gandhar begins production in March 2001The process LPG 043 Lacs MT of Pentane and SBP solvent

Jamnagar-Loni LPG Pipeline project the worlds longest and Indiarsquos first cross country LPG 1296 Km long pipeline which passes through GujratRajasthanHaryana and Delhi is completed The capacity of the pipelines in its first phase is 17 million TPA to be upgraded to 25 million TPA in the second phase

2001-02

GAIL picks up 12 equity in GSEGrsquos 156 MW power project in Gujarat as a strategic investment

Marketing functions is restructured and decentralize at zonal levels

GAILTEL phase-I commissioned creating an OFC based DWDM network connecting Delhi-Mumbai Delhi-Jaipur Delhi-Ahmmdabad Delhi-Vijaipur Meerat-Agra

2003-04

GAIL has an initial success in the form of significant gas find in the block A-1 in Myanmar and discovery of oil and gas in the Cambay block

GAIL successfully secures participation in 2 retail gas companies in Egypt Fayum Gas Company and Shell CNG

Platts declares GAIL as the first among Global Gas Utilities based on return on investment capital (ROIC) in its worldwide survey of Top 250 energy companies in 2004

Vizag ndash Secundrabad LPG pipeline the 580 km pipeline with the maximum throughput of 116 MMPTPA completed in June 2003

Bhagyanagar Gas Limited a joint venture of GAIL and HPCL incorporated in August 2003in the field of distribution and marketing of auto LPGCNG for vehicles and retailing of natural gas in the cities of Andhra Pradesh

Phase I and II of 8000 km network GAILTEL projects connecting Delhi Mumbai and 71 other cities completed This network provides a national communication backbone

2004-05

Incorporation of GAIL Global Singapore PVTLTD

Acquisition of 15 equity stake in Natural Gas Egypt

Agreement signed for acquisition of 9 equity stake in China Gas Holding LTD a joint venture for city gas projects in 42 cities of China

Tripura Natural gas CoLtd a joint venture for city gas project in Tripura incorporated

UP central gas Ltd a joint venture for city gas project with BPCL in Kanpur incorporated

De-bottlenecking of LLDPE swing unit from 150000 MT to 210000 MT at GAIL Pata

Gas management system commissioned for HVJ DVPL and SGPL

Commissioning of South Gujarat pipeline network

Commissioning of Vizag-Secundrabad LPG pipeline

2005-06

GAIL ilex Australia Videocon HPCL and BPCL consortium awarded Blocks no 56 in Oman

GAIL was ranked 11th among top 15 of the worlds largest listed gas utilities firms in the oil and gas industry in terms of market capitalization for the year 2005

GAIL gets Golden Icon award for e-governance

Inauguration of the National gas management centre (NGMC) of GAIL at NOIDA

GAIL bagged two awards for excellence in cost management from the Institute of Cost and Works Accounts of India (ICWAI)

2006-07

Mechanical completion of new HDPE (High Density Polyethylene) plant with a capacity of 100000 TPA at Petrochemical complex at PATA

Commissioning of Dahaj-Panvel pipeline

Brahmaputra cracker and polymer Limited-Joint venture company led by GAIL formed for implementing Assam gas cracker projects

GAIL acquires stake in A7 Myanmar block

GAILrsquos Vijaipur- Kota pipeline commissioned

GAILrsquos Kailaras- Malanpur pipeline commissioned

GAILrsquos consortium wins 3 CBM blocks in rd round of bidding

GAIL HPCL joint venture-Avantika gas limited incorporated

GAIL ONGC ink gas supply agreement

GAIL brings Indiarsquos first spot LNG cargo at Dahej

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Table of content

Chapter Content Page no

Abstract 1 About the company

Joint ventures and Subsidiaries Future plans of Gail wrt Natural Gas

2 Reforms of Natural Gas Industry Objective of the project 3 Introduction of the project

Indiarsquos energy mix Introduction of Natural gas Environmental scanning of natural gas

sector Natural gas outlook

4 Research Methodology 5 Data analysis and Interpretation

Findings 6 Recommendation and conclusion Scope of Further study 7 Annexure

Questionnaire Personal interview Conversion table Projections by different agencies

8 Reference

ABOUT THE COMPANY

GAIL (India) Ltdis one of the outstanding public enterprises in the country today It is one of the ldquoNAVRATNA ENTERPRISESrdquo and ranks among the top five companies in India It is Indiarsquos flagship natural gas company integrated all aspects of the natural gas value chain (including Exploration and Production Processing Transmission Distribution and Marketing) and its related services In a rapidly changing scenario GAIL (India) is spearheading the move to a new era of clean fuel industrialization creating a quadrilateral of green energy corridors that connect major consumption centers in India with major gas fields LNG terminals and other cross border gas sourcing points GAIL is Also expanding its business ton become a player in International market GAIL has completed nearly two and half decades of a eventful journey Starting with a natural gas transmission company it is today an integrated energy company along the natural gas value chain with global footprints having started as a gas transmission company during the late eighties it grew organically over the years by building a large network of natural gas trunk pipelines covering a length of around 7000 Km Today Gail has interests in the business of natural gas LPG liquid hydrocarbons and petrochemicals the latter being value added products The company has also entered in telecom sector by leasing bandwidth available through the OFC which is laid along the gas pipelines for their operations and maintenance GAIL has also diversified into exploration and production city gas distribution and is steadily developing an overseas presence etcGAIL is one of the leading public enterprises with a consistently excellent financial track record Turnover during the last ten years has shown a compounded annual growth rate of 13 percent The company recorded a turnover of rs18008 billion and a profit after tax of Rs2601 billion in FY 2007-08The Company has also received authorization from the Ministry of Petroleum and Natural gas to lay 5 new pipelines and in addition augmentation of 3 existing pipelines is also being taken up This will lead to doubling of pipelines length and transmission capacity in the next 4 to 5 years

VISION- Be a leading company in natural gas and beyond with global focus committed to customer care value creation for all stakeholders and environmental responsibility

MISSION- Accelerating and optimizing the effective and economic use of natural gas and its fractions to the benefit of national economy

MAJOR BUSINESS SEGMENTS

Natural gas

Petrochemicals

Exploration and production

LPG and other Liquid hydrocarbons

Telecommunication

HISTORY OF THE ORGANISATION

GAIL (India)Ltd(erstwhile Gas Authority of India Ltd)Indiarsquos principal gas

transmission and marketing company was set up by the Government Of India in August

1984 to create gas sector infrastructure for sustained development of the natural gas

sector in the country

The 2800 Kms Hazira-Vijaipur (HVJ) pipeline became operational in 1991During 1991-

1993 three LPG plants were constructed and some regional pipelines acquired enabling

GAIL to begin its regional gas distribution in various parts of India

GAIL began its city gas distribution in Delhi in 1997 by setting up nine CNG stations

catering to the cityrsquos vast public transport fleet

In 1999 GAIL set up northern Indiarsquos only petrochemical plant in Pata

GAIL became the first infrastructural provider category II Licensee and signed the

countryrsquos first service level agreement for leasing bandwidth in the Delhi-Vijaipur in

2001through its telecom business GAILTELIn 2001GAIL commissioned worlds

longest and India first cross country LPG Transmission Pipeline from Jamnagar to Loni

GAIL today has reached new milestone with its strategic diversification into

Petrochemicals Telecom and Liquid hydrocarbons besides gas infrastructure The

company has also extended its presence in Power Liquefied Natural Gas re-gasification

city gas distribution and exploration amp Production through equity and joint ventures

participations Incorporating the new found energy into its corporate identity Gas

Authority of India was renamed GAIL (India) Limited on November 22 2002

GROWTH

1990-91

2800Kms Hazira-Vijaipur Jagdishpur (HVJ) pipeline becomes operational in 1991

LPG phase-I plant at Vijaipur commissioned in February 1991

1991-92

Phase-2 at LPG Vijaipur plant commissioned in Feb 1992

1992-93

LPG project at Vaghodia commissioned in Feb 1003

1994-95

Joint venture Agreement signed with British Gas on December 6 1994Mahanagar Gas Limited Incorporated to implement Bombay City Gas Distribution project

1997-98

Government of India grants Navratna status to Gail herby entrusting greater autonomy to Gail after restructuring of the Board

Gas processing units (GPU) offsite utilities of the petrochemical plant at Pata commissioned

1999-00

GAIL participates in NELP bidding by submitting offer for 7 blocks in association with ONGC amp IOC and Russian company GazpromGovernment of India approved award of 2 blocks to GAIL One with ONGC in Orissa offshore and another with Gazprom in Bengal Offshore

LPG plant at Pata with a designed capacity of 258 lacs TPA of LPG commissioned for commercial production in March 2000

2000-01

GAIL conceptualizes a National Gas Grid to connect the supply and demand centres in the country with high pressure cross country pipelines networks

The gas processing complex Gandhar begins production in March 2001The process LPG 043 Lacs MT of Pentane and SBP solvent

Jamnagar-Loni LPG Pipeline project the worlds longest and Indiarsquos first cross country LPG 1296 Km long pipeline which passes through GujratRajasthanHaryana and Delhi is completed The capacity of the pipelines in its first phase is 17 million TPA to be upgraded to 25 million TPA in the second phase

2001-02

GAIL picks up 12 equity in GSEGrsquos 156 MW power project in Gujarat as a strategic investment

Marketing functions is restructured and decentralize at zonal levels

GAILTEL phase-I commissioned creating an OFC based DWDM network connecting Delhi-Mumbai Delhi-Jaipur Delhi-Ahmmdabad Delhi-Vijaipur Meerat-Agra

2003-04

GAIL has an initial success in the form of significant gas find in the block A-1 in Myanmar and discovery of oil and gas in the Cambay block

GAIL successfully secures participation in 2 retail gas companies in Egypt Fayum Gas Company and Shell CNG

Platts declares GAIL as the first among Global Gas Utilities based on return on investment capital (ROIC) in its worldwide survey of Top 250 energy companies in 2004

Vizag ndash Secundrabad LPG pipeline the 580 km pipeline with the maximum throughput of 116 MMPTPA completed in June 2003

Bhagyanagar Gas Limited a joint venture of GAIL and HPCL incorporated in August 2003in the field of distribution and marketing of auto LPGCNG for vehicles and retailing of natural gas in the cities of Andhra Pradesh

Phase I and II of 8000 km network GAILTEL projects connecting Delhi Mumbai and 71 other cities completed This network provides a national communication backbone

2004-05

Incorporation of GAIL Global Singapore PVTLTD

Acquisition of 15 equity stake in Natural Gas Egypt

Agreement signed for acquisition of 9 equity stake in China Gas Holding LTD a joint venture for city gas projects in 42 cities of China

Tripura Natural gas CoLtd a joint venture for city gas project in Tripura incorporated

UP central gas Ltd a joint venture for city gas project with BPCL in Kanpur incorporated

De-bottlenecking of LLDPE swing unit from 150000 MT to 210000 MT at GAIL Pata

Gas management system commissioned for HVJ DVPL and SGPL

Commissioning of South Gujarat pipeline network

Commissioning of Vizag-Secundrabad LPG pipeline

2005-06

GAIL ilex Australia Videocon HPCL and BPCL consortium awarded Blocks no 56 in Oman

GAIL was ranked 11th among top 15 of the worlds largest listed gas utilities firms in the oil and gas industry in terms of market capitalization for the year 2005

GAIL gets Golden Icon award for e-governance

Inauguration of the National gas management centre (NGMC) of GAIL at NOIDA

GAIL bagged two awards for excellence in cost management from the Institute of Cost and Works Accounts of India (ICWAI)

2006-07

Mechanical completion of new HDPE (High Density Polyethylene) plant with a capacity of 100000 TPA at Petrochemical complex at PATA

Commissioning of Dahaj-Panvel pipeline

Brahmaputra cracker and polymer Limited-Joint venture company led by GAIL formed for implementing Assam gas cracker projects

GAIL acquires stake in A7 Myanmar block

GAILrsquos Vijaipur- Kota pipeline commissioned

GAILrsquos Kailaras- Malanpur pipeline commissioned

GAILrsquos consortium wins 3 CBM blocks in rd round of bidding

GAIL HPCL joint venture-Avantika gas limited incorporated

GAIL ONGC ink gas supply agreement

GAIL brings Indiarsquos first spot LNG cargo at Dahej

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

ABOUT THE COMPANY

GAIL (India) Ltdis one of the outstanding public enterprises in the country today It is one of the ldquoNAVRATNA ENTERPRISESrdquo and ranks among the top five companies in India It is Indiarsquos flagship natural gas company integrated all aspects of the natural gas value chain (including Exploration and Production Processing Transmission Distribution and Marketing) and its related services In a rapidly changing scenario GAIL (India) is spearheading the move to a new era of clean fuel industrialization creating a quadrilateral of green energy corridors that connect major consumption centers in India with major gas fields LNG terminals and other cross border gas sourcing points GAIL is Also expanding its business ton become a player in International market GAIL has completed nearly two and half decades of a eventful journey Starting with a natural gas transmission company it is today an integrated energy company along the natural gas value chain with global footprints having started as a gas transmission company during the late eighties it grew organically over the years by building a large network of natural gas trunk pipelines covering a length of around 7000 Km Today Gail has interests in the business of natural gas LPG liquid hydrocarbons and petrochemicals the latter being value added products The company has also entered in telecom sector by leasing bandwidth available through the OFC which is laid along the gas pipelines for their operations and maintenance GAIL has also diversified into exploration and production city gas distribution and is steadily developing an overseas presence etcGAIL is one of the leading public enterprises with a consistently excellent financial track record Turnover during the last ten years has shown a compounded annual growth rate of 13 percent The company recorded a turnover of rs18008 billion and a profit after tax of Rs2601 billion in FY 2007-08The Company has also received authorization from the Ministry of Petroleum and Natural gas to lay 5 new pipelines and in addition augmentation of 3 existing pipelines is also being taken up This will lead to doubling of pipelines length and transmission capacity in the next 4 to 5 years

VISION- Be a leading company in natural gas and beyond with global focus committed to customer care value creation for all stakeholders and environmental responsibility

MISSION- Accelerating and optimizing the effective and economic use of natural gas and its fractions to the benefit of national economy

MAJOR BUSINESS SEGMENTS

Natural gas

Petrochemicals

Exploration and production

LPG and other Liquid hydrocarbons

Telecommunication

HISTORY OF THE ORGANISATION

GAIL (India)Ltd(erstwhile Gas Authority of India Ltd)Indiarsquos principal gas

transmission and marketing company was set up by the Government Of India in August

1984 to create gas sector infrastructure for sustained development of the natural gas

sector in the country

The 2800 Kms Hazira-Vijaipur (HVJ) pipeline became operational in 1991During 1991-

1993 three LPG plants were constructed and some regional pipelines acquired enabling

GAIL to begin its regional gas distribution in various parts of India

GAIL began its city gas distribution in Delhi in 1997 by setting up nine CNG stations

catering to the cityrsquos vast public transport fleet

In 1999 GAIL set up northern Indiarsquos only petrochemical plant in Pata

GAIL became the first infrastructural provider category II Licensee and signed the

countryrsquos first service level agreement for leasing bandwidth in the Delhi-Vijaipur in

2001through its telecom business GAILTELIn 2001GAIL commissioned worlds

longest and India first cross country LPG Transmission Pipeline from Jamnagar to Loni

GAIL today has reached new milestone with its strategic diversification into

Petrochemicals Telecom and Liquid hydrocarbons besides gas infrastructure The

company has also extended its presence in Power Liquefied Natural Gas re-gasification

city gas distribution and exploration amp Production through equity and joint ventures

participations Incorporating the new found energy into its corporate identity Gas

Authority of India was renamed GAIL (India) Limited on November 22 2002

GROWTH

1990-91

2800Kms Hazira-Vijaipur Jagdishpur (HVJ) pipeline becomes operational in 1991

LPG phase-I plant at Vijaipur commissioned in February 1991

1991-92

Phase-2 at LPG Vijaipur plant commissioned in Feb 1992

1992-93

LPG project at Vaghodia commissioned in Feb 1003

1994-95

Joint venture Agreement signed with British Gas on December 6 1994Mahanagar Gas Limited Incorporated to implement Bombay City Gas Distribution project

1997-98

Government of India grants Navratna status to Gail herby entrusting greater autonomy to Gail after restructuring of the Board

Gas processing units (GPU) offsite utilities of the petrochemical plant at Pata commissioned

1999-00

GAIL participates in NELP bidding by submitting offer for 7 blocks in association with ONGC amp IOC and Russian company GazpromGovernment of India approved award of 2 blocks to GAIL One with ONGC in Orissa offshore and another with Gazprom in Bengal Offshore

LPG plant at Pata with a designed capacity of 258 lacs TPA of LPG commissioned for commercial production in March 2000

2000-01

GAIL conceptualizes a National Gas Grid to connect the supply and demand centres in the country with high pressure cross country pipelines networks

The gas processing complex Gandhar begins production in March 2001The process LPG 043 Lacs MT of Pentane and SBP solvent

Jamnagar-Loni LPG Pipeline project the worlds longest and Indiarsquos first cross country LPG 1296 Km long pipeline which passes through GujratRajasthanHaryana and Delhi is completed The capacity of the pipelines in its first phase is 17 million TPA to be upgraded to 25 million TPA in the second phase

2001-02

GAIL picks up 12 equity in GSEGrsquos 156 MW power project in Gujarat as a strategic investment

Marketing functions is restructured and decentralize at zonal levels

GAILTEL phase-I commissioned creating an OFC based DWDM network connecting Delhi-Mumbai Delhi-Jaipur Delhi-Ahmmdabad Delhi-Vijaipur Meerat-Agra

2003-04

GAIL has an initial success in the form of significant gas find in the block A-1 in Myanmar and discovery of oil and gas in the Cambay block

GAIL successfully secures participation in 2 retail gas companies in Egypt Fayum Gas Company and Shell CNG

Platts declares GAIL as the first among Global Gas Utilities based on return on investment capital (ROIC) in its worldwide survey of Top 250 energy companies in 2004

Vizag ndash Secundrabad LPG pipeline the 580 km pipeline with the maximum throughput of 116 MMPTPA completed in June 2003

Bhagyanagar Gas Limited a joint venture of GAIL and HPCL incorporated in August 2003in the field of distribution and marketing of auto LPGCNG for vehicles and retailing of natural gas in the cities of Andhra Pradesh

Phase I and II of 8000 km network GAILTEL projects connecting Delhi Mumbai and 71 other cities completed This network provides a national communication backbone

2004-05

Incorporation of GAIL Global Singapore PVTLTD

Acquisition of 15 equity stake in Natural Gas Egypt

Agreement signed for acquisition of 9 equity stake in China Gas Holding LTD a joint venture for city gas projects in 42 cities of China

Tripura Natural gas CoLtd a joint venture for city gas project in Tripura incorporated

UP central gas Ltd a joint venture for city gas project with BPCL in Kanpur incorporated

De-bottlenecking of LLDPE swing unit from 150000 MT to 210000 MT at GAIL Pata

Gas management system commissioned for HVJ DVPL and SGPL

Commissioning of South Gujarat pipeline network

Commissioning of Vizag-Secundrabad LPG pipeline

2005-06

GAIL ilex Australia Videocon HPCL and BPCL consortium awarded Blocks no 56 in Oman

GAIL was ranked 11th among top 15 of the worlds largest listed gas utilities firms in the oil and gas industry in terms of market capitalization for the year 2005

GAIL gets Golden Icon award for e-governance

Inauguration of the National gas management centre (NGMC) of GAIL at NOIDA

GAIL bagged two awards for excellence in cost management from the Institute of Cost and Works Accounts of India (ICWAI)

2006-07

Mechanical completion of new HDPE (High Density Polyethylene) plant with a capacity of 100000 TPA at Petrochemical complex at PATA

Commissioning of Dahaj-Panvel pipeline

Brahmaputra cracker and polymer Limited-Joint venture company led by GAIL formed for implementing Assam gas cracker projects

GAIL acquires stake in A7 Myanmar block

GAILrsquos Vijaipur- Kota pipeline commissioned

GAILrsquos Kailaras- Malanpur pipeline commissioned

GAILrsquos consortium wins 3 CBM blocks in rd round of bidding

GAIL HPCL joint venture-Avantika gas limited incorporated

GAIL ONGC ink gas supply agreement

GAIL brings Indiarsquos first spot LNG cargo at Dahej

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

MAJOR BUSINESS SEGMENTS

Natural gas

Petrochemicals

Exploration and production

LPG and other Liquid hydrocarbons

Telecommunication

HISTORY OF THE ORGANISATION

GAIL (India)Ltd(erstwhile Gas Authority of India Ltd)Indiarsquos principal gas

transmission and marketing company was set up by the Government Of India in August

1984 to create gas sector infrastructure for sustained development of the natural gas

sector in the country

The 2800 Kms Hazira-Vijaipur (HVJ) pipeline became operational in 1991During 1991-

1993 three LPG plants were constructed and some regional pipelines acquired enabling

GAIL to begin its regional gas distribution in various parts of India

GAIL began its city gas distribution in Delhi in 1997 by setting up nine CNG stations

catering to the cityrsquos vast public transport fleet

In 1999 GAIL set up northern Indiarsquos only petrochemical plant in Pata

GAIL became the first infrastructural provider category II Licensee and signed the

countryrsquos first service level agreement for leasing bandwidth in the Delhi-Vijaipur in

2001through its telecom business GAILTELIn 2001GAIL commissioned worlds

longest and India first cross country LPG Transmission Pipeline from Jamnagar to Loni

GAIL today has reached new milestone with its strategic diversification into

Petrochemicals Telecom and Liquid hydrocarbons besides gas infrastructure The

company has also extended its presence in Power Liquefied Natural Gas re-gasification

city gas distribution and exploration amp Production through equity and joint ventures

participations Incorporating the new found energy into its corporate identity Gas

Authority of India was renamed GAIL (India) Limited on November 22 2002

GROWTH

1990-91

2800Kms Hazira-Vijaipur Jagdishpur (HVJ) pipeline becomes operational in 1991

LPG phase-I plant at Vijaipur commissioned in February 1991

1991-92

Phase-2 at LPG Vijaipur plant commissioned in Feb 1992

1992-93

LPG project at Vaghodia commissioned in Feb 1003

1994-95

Joint venture Agreement signed with British Gas on December 6 1994Mahanagar Gas Limited Incorporated to implement Bombay City Gas Distribution project

1997-98

Government of India grants Navratna status to Gail herby entrusting greater autonomy to Gail after restructuring of the Board

Gas processing units (GPU) offsite utilities of the petrochemical plant at Pata commissioned

1999-00

GAIL participates in NELP bidding by submitting offer for 7 blocks in association with ONGC amp IOC and Russian company GazpromGovernment of India approved award of 2 blocks to GAIL One with ONGC in Orissa offshore and another with Gazprom in Bengal Offshore

LPG plant at Pata with a designed capacity of 258 lacs TPA of LPG commissioned for commercial production in March 2000

2000-01

GAIL conceptualizes a National Gas Grid to connect the supply and demand centres in the country with high pressure cross country pipelines networks

The gas processing complex Gandhar begins production in March 2001The process LPG 043 Lacs MT of Pentane and SBP solvent

Jamnagar-Loni LPG Pipeline project the worlds longest and Indiarsquos first cross country LPG 1296 Km long pipeline which passes through GujratRajasthanHaryana and Delhi is completed The capacity of the pipelines in its first phase is 17 million TPA to be upgraded to 25 million TPA in the second phase

2001-02

GAIL picks up 12 equity in GSEGrsquos 156 MW power project in Gujarat as a strategic investment

Marketing functions is restructured and decentralize at zonal levels

GAILTEL phase-I commissioned creating an OFC based DWDM network connecting Delhi-Mumbai Delhi-Jaipur Delhi-Ahmmdabad Delhi-Vijaipur Meerat-Agra

2003-04

GAIL has an initial success in the form of significant gas find in the block A-1 in Myanmar and discovery of oil and gas in the Cambay block

GAIL successfully secures participation in 2 retail gas companies in Egypt Fayum Gas Company and Shell CNG

Platts declares GAIL as the first among Global Gas Utilities based on return on investment capital (ROIC) in its worldwide survey of Top 250 energy companies in 2004

Vizag ndash Secundrabad LPG pipeline the 580 km pipeline with the maximum throughput of 116 MMPTPA completed in June 2003

Bhagyanagar Gas Limited a joint venture of GAIL and HPCL incorporated in August 2003in the field of distribution and marketing of auto LPGCNG for vehicles and retailing of natural gas in the cities of Andhra Pradesh

Phase I and II of 8000 km network GAILTEL projects connecting Delhi Mumbai and 71 other cities completed This network provides a national communication backbone

2004-05

Incorporation of GAIL Global Singapore PVTLTD

Acquisition of 15 equity stake in Natural Gas Egypt

Agreement signed for acquisition of 9 equity stake in China Gas Holding LTD a joint venture for city gas projects in 42 cities of China

Tripura Natural gas CoLtd a joint venture for city gas project in Tripura incorporated

UP central gas Ltd a joint venture for city gas project with BPCL in Kanpur incorporated

De-bottlenecking of LLDPE swing unit from 150000 MT to 210000 MT at GAIL Pata

Gas management system commissioned for HVJ DVPL and SGPL

Commissioning of South Gujarat pipeline network

Commissioning of Vizag-Secundrabad LPG pipeline

2005-06

GAIL ilex Australia Videocon HPCL and BPCL consortium awarded Blocks no 56 in Oman

GAIL was ranked 11th among top 15 of the worlds largest listed gas utilities firms in the oil and gas industry in terms of market capitalization for the year 2005

GAIL gets Golden Icon award for e-governance

Inauguration of the National gas management centre (NGMC) of GAIL at NOIDA

GAIL bagged two awards for excellence in cost management from the Institute of Cost and Works Accounts of India (ICWAI)

2006-07

Mechanical completion of new HDPE (High Density Polyethylene) plant with a capacity of 100000 TPA at Petrochemical complex at PATA

Commissioning of Dahaj-Panvel pipeline

Brahmaputra cracker and polymer Limited-Joint venture company led by GAIL formed for implementing Assam gas cracker projects

GAIL acquires stake in A7 Myanmar block

GAILrsquos Vijaipur- Kota pipeline commissioned

GAILrsquos Kailaras- Malanpur pipeline commissioned

GAILrsquos consortium wins 3 CBM blocks in rd round of bidding

GAIL HPCL joint venture-Avantika gas limited incorporated

GAIL ONGC ink gas supply agreement

GAIL brings Indiarsquos first spot LNG cargo at Dahej

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

GAIL today has reached new milestone with its strategic diversification into

Petrochemicals Telecom and Liquid hydrocarbons besides gas infrastructure The

company has also extended its presence in Power Liquefied Natural Gas re-gasification

city gas distribution and exploration amp Production through equity and joint ventures

participations Incorporating the new found energy into its corporate identity Gas

Authority of India was renamed GAIL (India) Limited on November 22 2002

GROWTH

1990-91

2800Kms Hazira-Vijaipur Jagdishpur (HVJ) pipeline becomes operational in 1991

LPG phase-I plant at Vijaipur commissioned in February 1991

1991-92

Phase-2 at LPG Vijaipur plant commissioned in Feb 1992

1992-93

LPG project at Vaghodia commissioned in Feb 1003

1994-95

Joint venture Agreement signed with British Gas on December 6 1994Mahanagar Gas Limited Incorporated to implement Bombay City Gas Distribution project

1997-98

Government of India grants Navratna status to Gail herby entrusting greater autonomy to Gail after restructuring of the Board

Gas processing units (GPU) offsite utilities of the petrochemical plant at Pata commissioned

1999-00

GAIL participates in NELP bidding by submitting offer for 7 blocks in association with ONGC amp IOC and Russian company GazpromGovernment of India approved award of 2 blocks to GAIL One with ONGC in Orissa offshore and another with Gazprom in Bengal Offshore

LPG plant at Pata with a designed capacity of 258 lacs TPA of LPG commissioned for commercial production in March 2000

2000-01

GAIL conceptualizes a National Gas Grid to connect the supply and demand centres in the country with high pressure cross country pipelines networks

The gas processing complex Gandhar begins production in March 2001The process LPG 043 Lacs MT of Pentane and SBP solvent

Jamnagar-Loni LPG Pipeline project the worlds longest and Indiarsquos first cross country LPG 1296 Km long pipeline which passes through GujratRajasthanHaryana and Delhi is completed The capacity of the pipelines in its first phase is 17 million TPA to be upgraded to 25 million TPA in the second phase

2001-02

GAIL picks up 12 equity in GSEGrsquos 156 MW power project in Gujarat as a strategic investment

Marketing functions is restructured and decentralize at zonal levels

GAILTEL phase-I commissioned creating an OFC based DWDM network connecting Delhi-Mumbai Delhi-Jaipur Delhi-Ahmmdabad Delhi-Vijaipur Meerat-Agra

2003-04

GAIL has an initial success in the form of significant gas find in the block A-1 in Myanmar and discovery of oil and gas in the Cambay block

GAIL successfully secures participation in 2 retail gas companies in Egypt Fayum Gas Company and Shell CNG

Platts declares GAIL as the first among Global Gas Utilities based on return on investment capital (ROIC) in its worldwide survey of Top 250 energy companies in 2004

Vizag ndash Secundrabad LPG pipeline the 580 km pipeline with the maximum throughput of 116 MMPTPA completed in June 2003

Bhagyanagar Gas Limited a joint venture of GAIL and HPCL incorporated in August 2003in the field of distribution and marketing of auto LPGCNG for vehicles and retailing of natural gas in the cities of Andhra Pradesh

Phase I and II of 8000 km network GAILTEL projects connecting Delhi Mumbai and 71 other cities completed This network provides a national communication backbone

2004-05

Incorporation of GAIL Global Singapore PVTLTD

Acquisition of 15 equity stake in Natural Gas Egypt

Agreement signed for acquisition of 9 equity stake in China Gas Holding LTD a joint venture for city gas projects in 42 cities of China

Tripura Natural gas CoLtd a joint venture for city gas project in Tripura incorporated

UP central gas Ltd a joint venture for city gas project with BPCL in Kanpur incorporated

De-bottlenecking of LLDPE swing unit from 150000 MT to 210000 MT at GAIL Pata

Gas management system commissioned for HVJ DVPL and SGPL

Commissioning of South Gujarat pipeline network

Commissioning of Vizag-Secundrabad LPG pipeline

2005-06

GAIL ilex Australia Videocon HPCL and BPCL consortium awarded Blocks no 56 in Oman

GAIL was ranked 11th among top 15 of the worlds largest listed gas utilities firms in the oil and gas industry in terms of market capitalization for the year 2005

GAIL gets Golden Icon award for e-governance

Inauguration of the National gas management centre (NGMC) of GAIL at NOIDA

GAIL bagged two awards for excellence in cost management from the Institute of Cost and Works Accounts of India (ICWAI)

2006-07

Mechanical completion of new HDPE (High Density Polyethylene) plant with a capacity of 100000 TPA at Petrochemical complex at PATA

Commissioning of Dahaj-Panvel pipeline

Brahmaputra cracker and polymer Limited-Joint venture company led by GAIL formed for implementing Assam gas cracker projects

GAIL acquires stake in A7 Myanmar block

GAILrsquos Vijaipur- Kota pipeline commissioned

GAILrsquos Kailaras- Malanpur pipeline commissioned

GAILrsquos consortium wins 3 CBM blocks in rd round of bidding

GAIL HPCL joint venture-Avantika gas limited incorporated

GAIL ONGC ink gas supply agreement

GAIL brings Indiarsquos first spot LNG cargo at Dahej

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Gas processing units (GPU) offsite utilities of the petrochemical plant at Pata commissioned

1999-00

GAIL participates in NELP bidding by submitting offer for 7 blocks in association with ONGC amp IOC and Russian company GazpromGovernment of India approved award of 2 blocks to GAIL One with ONGC in Orissa offshore and another with Gazprom in Bengal Offshore

LPG plant at Pata with a designed capacity of 258 lacs TPA of LPG commissioned for commercial production in March 2000

2000-01

GAIL conceptualizes a National Gas Grid to connect the supply and demand centres in the country with high pressure cross country pipelines networks

The gas processing complex Gandhar begins production in March 2001The process LPG 043 Lacs MT of Pentane and SBP solvent

Jamnagar-Loni LPG Pipeline project the worlds longest and Indiarsquos first cross country LPG 1296 Km long pipeline which passes through GujratRajasthanHaryana and Delhi is completed The capacity of the pipelines in its first phase is 17 million TPA to be upgraded to 25 million TPA in the second phase

2001-02

GAIL picks up 12 equity in GSEGrsquos 156 MW power project in Gujarat as a strategic investment

Marketing functions is restructured and decentralize at zonal levels

GAILTEL phase-I commissioned creating an OFC based DWDM network connecting Delhi-Mumbai Delhi-Jaipur Delhi-Ahmmdabad Delhi-Vijaipur Meerat-Agra

2003-04

GAIL has an initial success in the form of significant gas find in the block A-1 in Myanmar and discovery of oil and gas in the Cambay block

GAIL successfully secures participation in 2 retail gas companies in Egypt Fayum Gas Company and Shell CNG

Platts declares GAIL as the first among Global Gas Utilities based on return on investment capital (ROIC) in its worldwide survey of Top 250 energy companies in 2004

Vizag ndash Secundrabad LPG pipeline the 580 km pipeline with the maximum throughput of 116 MMPTPA completed in June 2003

Bhagyanagar Gas Limited a joint venture of GAIL and HPCL incorporated in August 2003in the field of distribution and marketing of auto LPGCNG for vehicles and retailing of natural gas in the cities of Andhra Pradesh

Phase I and II of 8000 km network GAILTEL projects connecting Delhi Mumbai and 71 other cities completed This network provides a national communication backbone

2004-05

Incorporation of GAIL Global Singapore PVTLTD

Acquisition of 15 equity stake in Natural Gas Egypt

Agreement signed for acquisition of 9 equity stake in China Gas Holding LTD a joint venture for city gas projects in 42 cities of China

Tripura Natural gas CoLtd a joint venture for city gas project in Tripura incorporated

UP central gas Ltd a joint venture for city gas project with BPCL in Kanpur incorporated

De-bottlenecking of LLDPE swing unit from 150000 MT to 210000 MT at GAIL Pata

Gas management system commissioned for HVJ DVPL and SGPL

Commissioning of South Gujarat pipeline network

Commissioning of Vizag-Secundrabad LPG pipeline

2005-06

GAIL ilex Australia Videocon HPCL and BPCL consortium awarded Blocks no 56 in Oman

GAIL was ranked 11th among top 15 of the worlds largest listed gas utilities firms in the oil and gas industry in terms of market capitalization for the year 2005

GAIL gets Golden Icon award for e-governance

Inauguration of the National gas management centre (NGMC) of GAIL at NOIDA

GAIL bagged two awards for excellence in cost management from the Institute of Cost and Works Accounts of India (ICWAI)

2006-07

Mechanical completion of new HDPE (High Density Polyethylene) plant with a capacity of 100000 TPA at Petrochemical complex at PATA

Commissioning of Dahaj-Panvel pipeline

Brahmaputra cracker and polymer Limited-Joint venture company led by GAIL formed for implementing Assam gas cracker projects

GAIL acquires stake in A7 Myanmar block

GAILrsquos Vijaipur- Kota pipeline commissioned

GAILrsquos Kailaras- Malanpur pipeline commissioned

GAILrsquos consortium wins 3 CBM blocks in rd round of bidding

GAIL HPCL joint venture-Avantika gas limited incorporated

GAIL ONGC ink gas supply agreement

GAIL brings Indiarsquos first spot LNG cargo at Dahej

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

GAIL has an initial success in the form of significant gas find in the block A-1 in Myanmar and discovery of oil and gas in the Cambay block

GAIL successfully secures participation in 2 retail gas companies in Egypt Fayum Gas Company and Shell CNG

Platts declares GAIL as the first among Global Gas Utilities based on return on investment capital (ROIC) in its worldwide survey of Top 250 energy companies in 2004

Vizag ndash Secundrabad LPG pipeline the 580 km pipeline with the maximum throughput of 116 MMPTPA completed in June 2003

Bhagyanagar Gas Limited a joint venture of GAIL and HPCL incorporated in August 2003in the field of distribution and marketing of auto LPGCNG for vehicles and retailing of natural gas in the cities of Andhra Pradesh

Phase I and II of 8000 km network GAILTEL projects connecting Delhi Mumbai and 71 other cities completed This network provides a national communication backbone

2004-05

Incorporation of GAIL Global Singapore PVTLTD

Acquisition of 15 equity stake in Natural Gas Egypt

Agreement signed for acquisition of 9 equity stake in China Gas Holding LTD a joint venture for city gas projects in 42 cities of China

Tripura Natural gas CoLtd a joint venture for city gas project in Tripura incorporated

UP central gas Ltd a joint venture for city gas project with BPCL in Kanpur incorporated

De-bottlenecking of LLDPE swing unit from 150000 MT to 210000 MT at GAIL Pata

Gas management system commissioned for HVJ DVPL and SGPL

Commissioning of South Gujarat pipeline network

Commissioning of Vizag-Secundrabad LPG pipeline

2005-06

GAIL ilex Australia Videocon HPCL and BPCL consortium awarded Blocks no 56 in Oman

GAIL was ranked 11th among top 15 of the worlds largest listed gas utilities firms in the oil and gas industry in terms of market capitalization for the year 2005

GAIL gets Golden Icon award for e-governance

Inauguration of the National gas management centre (NGMC) of GAIL at NOIDA

GAIL bagged two awards for excellence in cost management from the Institute of Cost and Works Accounts of India (ICWAI)

2006-07

Mechanical completion of new HDPE (High Density Polyethylene) plant with a capacity of 100000 TPA at Petrochemical complex at PATA

Commissioning of Dahaj-Panvel pipeline

Brahmaputra cracker and polymer Limited-Joint venture company led by GAIL formed for implementing Assam gas cracker projects

GAIL acquires stake in A7 Myanmar block

GAILrsquos Vijaipur- Kota pipeline commissioned

GAILrsquos Kailaras- Malanpur pipeline commissioned

GAILrsquos consortium wins 3 CBM blocks in rd round of bidding

GAIL HPCL joint venture-Avantika gas limited incorporated

GAIL ONGC ink gas supply agreement

GAIL brings Indiarsquos first spot LNG cargo at Dahej

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Commissioning of South Gujarat pipeline network

Commissioning of Vizag-Secundrabad LPG pipeline

2005-06

GAIL ilex Australia Videocon HPCL and BPCL consortium awarded Blocks no 56 in Oman

GAIL was ranked 11th among top 15 of the worlds largest listed gas utilities firms in the oil and gas industry in terms of market capitalization for the year 2005

GAIL gets Golden Icon award for e-governance

Inauguration of the National gas management centre (NGMC) of GAIL at NOIDA

GAIL bagged two awards for excellence in cost management from the Institute of Cost and Works Accounts of India (ICWAI)

2006-07

Mechanical completion of new HDPE (High Density Polyethylene) plant with a capacity of 100000 TPA at Petrochemical complex at PATA

Commissioning of Dahaj-Panvel pipeline

Brahmaputra cracker and polymer Limited-Joint venture company led by GAIL formed for implementing Assam gas cracker projects

GAIL acquires stake in A7 Myanmar block

GAILrsquos Vijaipur- Kota pipeline commissioned

GAILrsquos Kailaras- Malanpur pipeline commissioned

GAILrsquos consortium wins 3 CBM blocks in rd round of bidding

GAIL HPCL joint venture-Avantika gas limited incorporated

GAIL ONGC ink gas supply agreement

GAIL brings Indiarsquos first spot LNG cargo at Dahej

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

GAIL TODAY

GAIL (India) Limited is Indiarsquos flagship natural gas company integrating all aspects of

the natural gas value chain (including Exploration and Production Processing

Transmission Distribution and Marketing) and its related services Gas transmission and

distribution forms the bulk of GAILrsquos business today followed by gas processing for LPG

production and production of petrochemicals

DIVERSIFICATION

Today GAIL has expanded into Gas processing Petrochemicals Liquefied Petroleum

Gas Transmission and Telecommunications The company has also extended its presence

in power Liquefied natural gas re-gasification city gas distribution and exploration and

production through equity and joint ventures participations GAIL (India) Ltd has the

largest high pressure pipeline in India

HIGHLIGHTS (2006-2007)

Construction of 600 Kms of pipeline

Expanding its petrochemical capacity at Pata plant from 310000 to 410000

In consortium with several national and international companies GAIL was awarded 15 blocks under NELP

Gailtel achieved the profit of 097cr

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

HIGHLIGHTS (2007-2008)

Govt awarded marketing rights of PMT gas to GAIL as Govt of India nominee

Transmission of gas to Godavari from Krishna as done by the agreement between GAIL and RLTIL

MOU with Reliance for joint cooperation in petrochemicals

Expansion of PATA plant

Joint venture with China(China gas global energy)

MOU with ITERAoil and gas company of Russia

Joint venture for city gas projects in Rajasthan(GAIL AND HPLL)

City gas distribution in West Bengal(GAIL and Indian oil)

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

SUBSIDIARIES amp JOINTVENTURES of GAIL

Gail(India) Ltd has been the pioneer for City Gas Projects in India With natural gas emerging as the fuel of choice in the country Gail (India) Ltd believes that the next decade will belong to the city gas Gail (India) Ltd was the first Company to introduce City Gas Projects in India for supplies to households commercial user and for the transport sector by forming Joint Venture Companies

Subsidiaries GAIL Gas Limited

Gail (India) Ltd has formed a wholly owned subsidiary named lsquoGAIL Gas Limitedrsquo for implementing City Gas Projects and CNG corridor in the country The subsidiary company will act as a vehicle for bidding for laying of pipeline infrastructure in the country

GAIL Global (Singapore) Pte Limited

Gail (India) Ltd has a wholly owned subsidiary namely GAIL Global (Singapore) Pte Ltd to manage investments abroad Gail (India) Ltd is looking for further business opportunities through this subsidiary company

Brahmaputra Cracker and Polymer Limited

Gail (India) Ltd has 70 equity share with Oil India Limited (OIL) Numaligarh Refinery Limited (NRL) Govt of Assam each having 10 equity share The authorized capital of the company is Rs 1200 Crores A Feedstock Supply Agreement has been signed between Brahmaputra Cracker and Polymer Limited (BCPL) and all the three suppliers viz Oil and Natural Gas Company Limited Oil India Limited and Numaligarh Refinery Limited Financial closure for the project is likely to be completed during the year 2008-09

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Joint Ventures

Aavantika Gas Limited (AGL)

AGL is a Joint Venture of Gail (India) Ltd and Hindustan Petroleum Corporation Limited (HPCL) for implementation of City Gas Projects in the cities of Madhya Pradesh AGL has started project implementation activities in the city of Indore Gail (India) Ltd has 225 stake in the Company along with HPCL as equal partner

Bhagyanagar Gas Limited (BGL)

BGL is currently operating three Auto LPG stations in Hyderabad and one Auto LPG station in Tirupathi It is currently operating six CNG stations in Vijayawada andthree CNG stations in Hyderabad Gail (India) Ltd has 225 stake in the company along with HPCL as equal partner

Central UP Gas Limited (CUGL)

CUGL is currently operating five CNG stations in Kanpur one CNG station in Bareily and one CNG station in Kanpur is under commissioning CUGL is building MDPE network for supply of PNG to domestic commercial and industrial sectors in the city of Kanpur Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Green Gas Limited (GGL)

GGL is currently operating four CNG stations in Lucknow and three CNG stations in Agra GGL will also take up project implementation in other cities of Western UP on the basis of gas availability and project viability Gail (India) Ltd has 225 stake in the company along with IOC as equal partner

Indraprastha Gas Limited (IGL)

IGL is supplying piped gas to around 1 Lac domestic 276 commercial 16 small industrial consumers and CNG to over 135 Lacs vehicles through 153 CNG stations IGL is catering to worldrsquos largest CNG bus fleet of over 11000 buses in Delhi Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Mahanagar Gas Limited (MGL)

MGL has set up 128 CNG stations catering to over 185 Lacs vehicles spread over Mumbai Thane Mira- Bhayandar and Navi-Mumbai areas besides supplying PNG to over 340 Lacs domestic 907 commercial and 36 small industrial consumers Gail (India) Ltd has 4975 stake in the company along with British Gas as equal partner

Maharashtra Natural Gas Limited (MNGL)

MNGL is a Joint Venture of Gail (India) Ltd and Bharat Petroleum Corporation Limited (BPCL) for implementation of City Gas Projects in Pune city MNGL is developing necessary infrastructure for supply of CNG and PNG in the city Gail (India) Ltd has 225 stake in the company along with BPCL as equal partner

Petronet LNG Limited (PLL)

PLL was formed for setting up of LNG import and regasification facilities PLL has a long term LNG supply contract with Ras Gas Qatar for import of 75 MMTPA PLL Dahej terminal is being expanded to 10 MMTPA capacity Gail (India) Ltd has 1250 stake in the company along with BPCL IOC and ONGC as equal partners

Ratnagiri Gas and Power Private Limited (RGPPL)

RGPPL is a Joint Venture Company between Gail (India) Ltd NTPC Financial Institutions and MSEB Gail (India) Ltd has 2833 stake in the company along with NTPC as equal partner The capacity of the Ratnagiri Gas amp Power Station is 2150 MW Gail (India) Ltd has made an investment of Rs 500 Crores and has approved additional equity of Rs 475 Crores to RGPPL out of the Rs 475Crores an amount of Rs 9290 Crores has been paid during the month of May 2008

Tripura Natural Gas Company Limited (TNGCL)

TNGCL is presently supplying gas to 6600 domestic 104 commercial 21 industrial consumers and has set up one CNG station in Agartala city Gail (India) Ltd has 29 stake in the company Gail (India) Ltd has approved formation of JV for City Gas Projects in Vadodara with Vadodara Mahanagar Seva Sadan (VMSS) with 26 percent equity while VMSS will have 24 per cent equity The balance 50 per cent equity will be held by strategic investors and public A JV agreement has also been signed with HPCL for city gas projects in Rajasthan

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Future Plans of Gail wrt Natural Gas

Physical Growth Strategy and Way Forward

1 Domestic Gas Sourcing amp Marketing

Strategy Target transmission of 246 MMSCMD and marketing of 158 MMSCMD

gas out of total estimated gas availability of 290 MMSCMD by 2011-12 Develop new markets Offer flexibility in contract terms Optimal utilization of network through swappingsharing Segregation of rich and lean gas on HVJDVPL for processing plants Rationalization of transmission tariff for spur-lines

Action Planbull Aggressive tie-up with producerssuppliers and linkage with upcoming

sourcesGas Transmission (MMSCMD)

Gas Marketing(MMSCMD)

Timeline

83 70 2007-08129 83 2008-09182 112 2009-10205 126 2010-11246 158 2011-12

bull Advance action on finalization of GSAs and GTAs for new pipelinesbull Leverage transmission capability to secure more gas from new gas findsbull Opportunistically operate pipelines on common carrier principle to bring

additional revenue in terms of transmission tariffbull Step up efforts to source directly from international markets utilize

connectivity between HVJ and Shell Hazira terminalbull Efforts to retain existing customers and ensure that future customers choose

GAIL over competitors

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

2 Gas Transmission

Strategy Proactively expand pipeline infrastructure from 6100 km to 11000 km by

2011-12 to meet the transmission target of 246 MMSCMD Leverage existing capacities in trunk lines amp regional networks focus on

optimization of pipeline capacity Reduce project cost and execution time Create spurlines for prospective City Gas Distribution projects

Action Plan Execution of Seven Pipeline projects by 2011-12

Pipeline Timeline1 Capacity augmentation of DVPLGREP

I Phase-1 New Compressor Station in DVPL amp Loop-line in GREP

2009

Ii Phase-II Loopline in DVPLamp Compressor station in GREP 20112 Chainsa-Gurgaon-Hissar PL

I Phase ndashI up to Jhajjar 2009Ii Phase ndash II up to Hissar 2011

3 Dadri-Bawana-Nangal PLI Phase ndashI up to Bawana 2009Ii Phase ndash II up to Nangal 2011

4 Dabhol-Bangalore PL 20115 Kochi-Mangalore-Bangalore PL 20116 Jagdishpur-Haldia PL 20117 Kochi-Kayamkulam PL 2012

Prepare a paper on ldquoCorridor of rich gas and lean gas pipelines separatelyrdquo for facilitating operations of Gas Processing Units amp Petrochemical Plant

bull Strengthen project management skillsbull Since future pipeline projects will be allotted based on competitive bidding

procedure by regulator ensure competitiveness in terms of cost efficiency execution timelines etc

3 City Gas

Strategy Aggressively pursue City Gas opportunities in Domestic cities Immediate priority of rolling out city gas in more cities

ndash 20 cities by 2008-09ndash 54 cities by 2010-11ndash 130 cities by 2012-13

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

(GAIL has applied to MoPampNG for authorization for City Gas Distribution in 230 cities contiguous to existingproposed pipelines in various states of India)

Develop CNG corridors along highways contiguous to our Networks

Action Planbull Allocate gas for city gas projects on priority out of the new secured sources

(ONGC RIL RLNG etc)bull Form JVs with OMCs and various gas producers to exploit circumstantial

advantages bull Explore possibility of city gas projects independently or through wholly

owned subsidiaries bull Prioritize network to be developed for the industry clustersbull Detailed report on development of one CNG corridor for transport sector on

pilot basis

4 EampP

Strategy Target to be self-sustainable by 2011-12 Secure gas sources through EampP route to strengthen mid stream amp

downstream business Participation as sole joint operator in Domestic EampP CBM Bidding

rounds Balanced portfolio of exploration amp development assets Pursue international EampP opportunities as non-operator Acquisition of small EampP company in India or abroad

Action Plan Commercialize production from 5 blocks by 2011-12 Identify farm-in and farm-out opportunities for balancing the portfolio Develop and strengthen EampP capability and resources for operatorship -

ensure requisite manpower strength by time bound recruitment plan Balanced approach in EampP - participation as major partner operator in

Domestic EampP Bidding rounds Examine the approach taken by other EampP companies

Reforms of Natural Gas Industry

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

11 Gas market reform

A central issue for gas market reform in many economies has been how to create more competitive and flexible markets in the presence of natural monopolies in transmission and distribution Pipelines the only economic option for transporting gas across land involve large fixed costs and low marginal costs of operation such that a given level of demand can usually be met at lower cost by using one pipeline intensively rather than building a second pipeline Even when a market grows beyond the initial design capacity of a pipeline capacity can usually be expanded by adding compressors at considerably lower cost than building a new pipeline

One of the purposes of gas market reform is to separate the market for the gas commodity from the market for gas transport services In the traditional model for gas supply in many economies including India consumers have only been able to purchase delivered gas from a single pipeline owner at a bundled price incorporating the cost of the gas plus the cost of transporting it Unbundling and open access to pipelines creates the opportunity for gas consumers and producers to negotiate directly for the sale of gas and then separately arrange for its transport

In recent years the Indian Government has made significant progress in establishing a regulatory framework for pipeline access and pricing seeking to promote downstream competition and increased public and private investment in natural gas pipeline infrastructure In early 2006 the Indian Parliament passed the Petroleum and Natural Gas Regulatory Board Act which envisaged setting up an independent regulator to monitor post production activities

The Petroleum and Natural Gas Regulatory Board which is currently being established will regulate-

Building laying operating and expanding natural gas pipelines City or local gas distribution networks and Access tariffs and technical standards

The objective of the board is-

to protect consumer interests by fostering fair trade and competition among entities engaged in specified activities relating to natural gas and

to ensure uninterrupted and adequate supply of natural gas in all parts of the country and to promote competitive markets in India

To underpin the Petroleum and Natural Gas Regulatory Board Act the

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Government has formulated the Gas Pipeline Policy for the development of natural gas pipelines and city or local gas distribution networks which came into effect at the end of 2006 The objective of the policy is-

to promote public and private investment in natural gas pipelines and city or local gas distribution networks

to facilitate open access for all players to the pipeline network on a nondiscriminatory basis

to encourage competition among entities and to protect consumer interests in terms of gas availability and reasonable gas

transport tariffs

A Gas Advisory Board will also be set up to promote and develop the gas pipeline network in India

Currently open access to the transmission network is allowed on a limited scaleFor example Petronet LNG joint venture partners use HazirandashVijaipurndashJagdishpur and DahejndashVijaipur networks to sell regasified LNG New regulations are expected to permit open access on a larger scale and in a transparent manner thus enabling private producers and LNG terminal operators to sell gas directly to their customers State governments are expected to play a key role in facilitating timely completion and operation of pipelines and city or local natural gas distribution networks by ensuring statutory and other clearances are given without delay

As the natural gas market in India matures the policy envisages the unbundling of gas transmission and marketing activities to avoid conflicts of interest and to ensure that pipeline ownership does not provide competitive advantage to any gas seller and all players have open access to the gas grid on a nondiscriminatory basis Importantly the policy permits 100 per cent foreign direct investment in laying natural gas pipelines under the automatic approval route seeking to boost investment in natural gas infrastructure development and to supplement domestic sources of finance

Some of the contentious issues raised by the industry in relation to the new natural gas regulations concern the power of the board to regulate contract carriers where pipelines are laid exclusively for consumers and the decision on the pipeline is made between the network operator and a specific consumer The board also has the power to determine a period of exclusivity for city or local gas distribution networks a power that is supported by network operators and contested by prospective new entrants (ICRA 2006)

Development of a national gas pipeline network will be a key driver of growth in Indiarsquos natural gas market Passage of the Petroleum and Natural Gas Regulatory Board Act and release of the associated Gas Pipeline Policy is a significant step forward in creating a robust regulatory framework for downstream natural gas activities The appointment of members of the proposed regulatory board and finalisation of further

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

policy directives governing the gas market are expected to trigger much needed investment in the expansion of gas transmission and distribution infrastructure The Indian Government estimates that investment by public and private entities could reach almost 400 billion Indian rupees (around US$9 billion) over the five years to 2011-12 Gas transmission pipelines account for more than half of the expected investment followed by LNG terminals and city gas distribution networks at nearly one quarter (MoPNG 2006a) However clarity on unresolved or contentious issues is critical for investment to start flowing into the gas infrastructure sector and for a competitive gas market to emerge If investment in coming years is less than optimal it will have a dampening effect on gas demand

Recent policy initiatives

In recognition of the key role of electricity in driving rapid economic growth and poverty alleviation India has set the target of providing access to electricity to all households by 2012 and increasing availability of electricity to more than 1000 kilowatt hours per person by 2012 The latter target would require an estimated capacity addition of more than 100000 megawatts by 2012 The government has identified further electricity sector reform that includes-

promoting competition in interstate transmission setting up an independent government authority to ensure nondiscriminatory grid

access for competing generators launching a program for capacity additions reducing transmission and distribution losses and attracting private investment

To meet the above objectives a new policy and regulatory framework is being put in place The Electricity (Amendment) Act 2007

The Electricity (Amendment) Act 2007 provides an enabling environment for accelerated and more efficient development of the power sector seeking to encourage competition with appropriate regulatory intervention There is no licensing requirement for electricity generation and captive generation has been freed from all controls under the Act

The national electricity policy sets out guidelines for the accelerated development of the power sector providing supply of electricity to all areas and protecting the interests of consumers and other stakeholders keeping in view the availability of energy resources available technologies economics of electricity generation and energy security issues

Other key initiatives in the sector include the rural electrification policy and Mega power projects (thermal generation projects of at least 700 megawatt capacity and hydropower plants of at least 350 megawatt capacity that supply electricity to more than one state) Objective of the studyproject

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

1)To understand the consumption pattern of natural gas in India

2)To analysis the growing need of the natural gas in India

3)To analysis factors constraining the development of gas market

4)To estimate the future demand for natural gas in India

Indiarsquos Energy Mix

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

India with a population base of over 11 billion is the fifth largest energy consumer in the world With consumption at 450 Mtoe of primary energy in 2007 India accounts for 37 percent of the total world primary energy consumption The per capita energy consumption of less than 20 Mtoe per capita however is at the lower end of the spectrum compared to other countries such as China and USA Historically the countryrsquos energy consumption trend has shown a compounded annual growth rate (CAGR) of 6 percent

In order to sustain such high projected economic growth rates India is faced with the challenge of not only securing long term energy supplies at reasonable costs but also ensuring that such energy sources are clean convenient and reliable Today India uses different forms of energy sources to fuel its economy These include coal oil natural gas hydel and nuclear besides other renewable energy sources such as wind solar biomass etc Coal contributes a major chunk about 55 percent to Indiarsquos primary energy basket with oil and natural gas contributing 30 percent and 9 percent respectively

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

The share of natural gas at 8 percent as against the world average of 24 percent speaks of the potential for development of natural gas market in India The Government as stated in the Hydrocarbon Vision 2025 also projects the share of natural gas in Indiarsquos energy basket to grow from the current 8 percent to 15 percent by the end of the Tenth Plan period (2006-07) and to 20 percent by 2024-25

The energy consumption matrix of India is dominated by fossil fuels viz coal amp lignite Oilamp Natural gas Total commercial energy consumption till 2007-08 has grown at CAGR of6 per cent over 1980-81 while natural gas consumption has grown at a CAGR of 13 percent over the same period

Sector wise cosumption of Natural Gas in India

Gas demand in India continues to be influenced by the cost economics vis-agrave-vis alternative fuels pertaining to each of the end use sectors primarily power and fertilizer as also

the dynamics of these sectors The natural gas consumption in India in 2007 was as follows-

Various agencies have made assessments in the past regarding natural gas demand and supply The same is

given in the appendix

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Introduction of Natural Gas

Natural gas is clean fossil fuel with many uses Its key constituent is methane-the simplest form of hydrocarbon molecule comprising one carbon atom attached to form a hydrogen atom-which combines with oxygen when burnt to form carbon dioxide and water Methane is a colorless odorless gas which usually burns with a blue flame but if there is not enough oxygen present for complete combustion the flame turns yellow indicating the presence of soot (pure carbon) and the poisonous by-product carbon monoxide The characteristic smell of natural gas as sold to the consumer is added either by the pipeline transmission company or by the local distribution company to make it easier to identify leaks

Pipeline gas is not a uniform product since the heat released by burning (its calorific value) depends on the proportions of its other constituents mainly carbon dioxide nitrogen and hydrogen which depend on where the gas comes from Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its constraint for entry to gas pipeline networks and producers must be able to supply natural gas which meets the relatively narrow quality specifications laid down by pipeline operators

Natural Gas come Natural gas is a combustible mixture of hydrocarbon gases While natural gas is formed primarily of methane it can also include ethane propane butane and pentane The composition of natural gas can vary widely but below is a chart outlining the typical makeup of natural gas before it is refined

Typical Composition of Natural Gas

Methane CH4 70-90Ethane C2H6 0-20Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8Oxygen O2 0-02Nitrogen N2 0-5Hydrogen sulphide H2S 0-5Rare gases A He Ne Xe Trace

In its purest form such as the natural gas that is delivered to your home it is almost pure methane Methane is a molecule made up of one carbon atom and four hydrogen atoms and is referred to as CH4

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Natural Gas in 4 basic forms

Liquified Natural Gas LNG - Natural Gas which has been liquefied at -160 Natural Gas is liquefied to facilitate transportation in cryogenic tankers across sea

Regasified Liquefied Natural Gas RLNG - Compressed Natural gas CNG - Natural Gas compressed to a pressure of 200-250

kgcm2 used as fuel for transportation CNG decreases vehicular pollution Piped Natural gas PNG - Natural Gas distributed through a pipeline network that

has safety valves to maintain the pressure assuring safe uninterrupted supply to the domestic sector

Sector-wise use of natural gas

Sector Natural Gas is used

Generation of electricity by utilities

As fuel for base load power plantsIn combined cycleco-generation power plants

Fertilizer IndustryAs feed stock in the production of ammonia and urea

Industrial

As an under boiler fuel for raising steamAs fuel in furnaces and heating applications

Domestic and commercial

For heating of spaces and waterFor cooking

Automotive As a non-polluting fuel

PetrochemicalsAs the raw material from which a variety of chemical productseg methanol are derived

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Environmental Scanning of Natural Gas Sector

The natural gas market in India is passing through a transition phase where new paradigm

is replacing the existing framework of consumer markets suppliers govt policies etc

The drivers of change can be traced to the emerging environment as follows

Political Environment ndash The Govt is under an obligation to provide adequate

resources to its citizen for meeting their energy requirements As per Eleventh

Five Year Plan over half of the countryrsquos population does not have access to

electricity or any other form of commercial energy The escalating oil prices have

further made it difficult for the Govt to maintain its subsidized fuel policy

Therefore it needs to find out alternative economically viable fuels Natural Gas

emerges as the front runner among all other alternative sources like hydro wind

solar and nuclear energy

Economic Environment ndash The development of Indian economy requires

sufficient supply of energy resources In order to meet the accelerating pace of

economic growth diversification of energy resources is inevitable as oil imports

are not dependable with escalating crude prices The energy supply basket must

contain a proper mix of conventional and non conventional resources with a

balanced approach to imports and domestic production

Besides prices of alternative fuels also influence the consumption pattern of

energy resources Natural Gas is comparatively very cost effective for end users

like power fertilizer etc resulting into higher demand Such concerns resulted

into focus being shift to development of alternative fuel sources like natural gas

liquefied natural gas (LNG) coal bed methane gas hydrates etc

Social Environment ndash The increasing awareness among people for environment

preservation influenced their fuel consumption habits Public Interest Litigations

(PIL) media sensitize people towards preservation of naturersquos heritage for the

benefit of future generations and highlighted the degradation of environment due

to various kinds of pollution

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Technological Environment ndash New Exploration and Licensing Policy (NELP)

initiated the private sector participation in oil and gas sector The exploration and

production activities stepped up with use of new technologies like high resolution

3 D seismic survey etc Private players showed comparatively higher exploration

efficiency and reported new oil and gas finds like RILrsquos KG Basin find which

encouraged all the participants in oil and gas market This has made possible the

utilization of new improved latest technologies in the country

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Natural Gas - Outlook

Most agencies have projected Indiarsquos demand of natural gas to grow at a rate higher than other fuels such as oil and coal The future demand for natural gas in India will be driven mainly by two factors

1048707 the need for new sources of energy to fuel economic growth and improve livingconditions and

1048707 the desire to reduce the consumption of coal and liquid fuels and thus the level ofpollution

These drivers are however subject to a number of constraints in determining the actual level of gas demand the price of gas and its competitiveness vis-agrave-vis other fuels and the rate at which the downstream market is developed in both power and non-power sectors

Many uncertainties will affect the future gas demand level particularly with respect to the cost of supply and Indiarsquos ability to create an integrated national transportation and distribution network Competitiveness of natural gas against coal in power generation will also be a key determinant of gas-demand growth

Indiarsquos demand projections have been made at different points in time using different assumptions and for different periods summarises the projections made by different agencies for the same milestone years over respective forecast period by adopting the process of interpolation and extrapolation

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

INDIAN PLANNING COMMISSION

For arriving at the future demand for natural gas sectorwise analysis has been carried out as under

Power Sector Analysis

The power sector would continue to be one of the major consumers for natural gas The Ministry of Power has set a target of 70000 MW generation for the 5 year period ending 2012 The current thermal power generation is about 90800 MW of which 12 percent (10900 MW) is gas based The gas-based power plants which are gaining everyonersquos attention in the power sector would definitely be the main source of energy in the future Gas based power plants have a capacity of 18892 MW and the requirement of gas for the same is likely to be 75 MMSCMDDepartment of Power has made a projection of additional 33655 MW of gas based power projects which may come up by 2012 On an optimistic note 40 percent of these plants have been assumed to come up by 2012 This would translate into roughly 12700 MW of power generation requiring around 5082 MMSCMD gas The present requirement of gas for the existing gas-based power plants is 6819 MMSCMD Adding gas requirement of 750 MMSCMD and 5082 MMSCMD as explained in the above Para the total gas requirement by the end of 2011-12 is likely to be 12657 MMSCMD Assuming that the gas requirement increases in the same proportion every year the projected gas demand for the power sector by 2011-12 would be as under

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Fertilizer Sector Analysis

It has been well established that natural gas is the most cost effective fuel vis-agrave-vis other liquid fuels for fertilizer plants During the year 2004-05 gas based fertilizer (urea) production accounted for 66 percent of the total fertilizer production Naphtha and FOLSHS based production accounts for the balance 34 percent Requirement of gas for fertilizer sector is expected to increase in the years to come not only for meeting the current shortfall being faced by the existing gas based urea units but also on account of-conversion of Naphtha and FOLSHS based units to NGLNGde-bottlenecking of existing urea unitssetting up of new and expansion of existing urea units andrevival of closed urea units of Hindustan Fertilizers Corporation Ltd (HFCL) and Fertilizer Corporation of India (FCI)All non gas based urea units will be converted to gas within the next three years Under the above scenario the total requirement of gas for the fertilizer sector by the 2011-12 is expected to be 7626 MMSCMD The break-up of gas requirement year wise and the corresponding production capacity of urea are-

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

City Gas Distribution

This is another sector which has a high growth potential World-wide city gas distribution has grown hand in hand with the gas sector development in terms of supply infrastructure and transmission infrastructure With the expected growth in the gas supply and the simultaneous creation of gas inter-state transmission infrastructure in India this sector is bound to grow in the coming yearsWith the emphasis on clean environment this sector would get the necessary thrust in the coming years In line with this various players primarily led by GAIL have drawn up ambitious plans to roll out city gas infrastructure across a number of cities in the country From the existing coverage of 10 cities the coverage is expected to grow to 40 cities in the next 5-7 years This sector can be expected to grow at double digit rates after 2010 The demand in this sector was about 11 MMSCMD in 2006-07 and 1208 MMSCMD in 2007-08 Assuming a conservative annual growth of 8 percent the demand would be-

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

PetrochemicalsRefineriesInternal Consumption and Sponge IronSteel and other Industries

The demand as per the industry estimates in the PetrochemicalsRefineries and Internal Consumption (of Gas Industries) sectors was about 2371 MMSCMD in 2006-07 These industries are estimated to grow in line with countryrsquos projected economic growth Hence an annual growth rate of about 7 percent is assumed for the next 5 year period which would result in a demand of 3325 MMSCMD by the 2011-12 Similarly the sponge ironsteel sector is also expected to grow at the same rate of 7 percent from the current level of 6 MMSCMD reaching a level of 786 MMSCMD by the 2011-12

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Based on the above analysis the consolidated demand estimate is presented as-

Sector Wise Gas Demand Projections (2007-2012)

2007-08 2008-09 2009-10 2010-11 2011-12

Power 7970 9120 10270 11420 12657

Fertilizer 4102 4289 5590 7626 7626

City gas 1208 1293 1383 1480 1583

Industrial 1500 1605 1717 1838 1966

Petrochemicals RefineriesInternal Consumption

2537 2715 2905 3108 3325

Sponge ironSteel

600 642 687 735 786

Total 17917 19664 22552 26207 27943

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Natural Gas Supply Considerations

Meeting the significant potential for growth in natural gas demand in India will require a substantial increase in gas supplies This could be achieved through a number of avenues including an increase in domestic gas production the construction of natural gas pipelines from international sources of supply and the expansion of LNG imports Each of these options has different cost profiles energy security implications and other characteristics that will affect its contribution to Indiarsquos growing natural gas requirements over the medium to longer term

Domestic natural gas production

As discussed earlier a number of domestic gas fields currently supply Indiarsquos gas requirements Offshore fields mainly the Mumbai High field produced around 226 billion cubic metres of gas (equivalent to 165 million tonnes of LNG) in 2005-06 around 70 per cent of Indiarsquos total gas production (MoPNG 2006b) Onshore fields particularly in Gujarat Assam and Andhra Pradesh produced 96 billion cubic metres of gas (equivalent to 70 million tonnes of LNG) in 2005-06 While there has been some growth in natural gas production from onshore fields over the past decade production from offshore fields peaked in 2003-04 and has since declined as resources in the Mumbai High gas field are depleted

A number of offshore natural gas discoveries in India over the past several years have increased the countryrsquos gas reserves The most notable recent finds have occurred in the Krishna Godavari (KG) basin located in the Bay of Bengal off Indiarsquos east coast Indiarsquos total proved gas reserves are 11 trillion cubic metres and at current production rates will last for 34 years (BP 2007) This does not include many of the recent KG basin finds which are yet to be proven

The first gas from the KG basin is due to be delivered onshore by the end of 2009 initially producing around 146 billion cubic metres of gas a year (equivalent to 107 million tonnes of LNG) In early 2007 a gas transport and gas sale and purchase agreement was signed between Reliance Industries Limited (RIL) and GAIL The agreement will enable RIL to use GAILrsquos pipeline network in Andhra Pradesh Madhya Pradesh and other states and entitle GAIL to sell a share of RILrsquos gas from the KG basin The capital costs of RILrsquos KG basin project are estimated to be US$52 billion (RIL 2007)

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Official Indian Government natural gas production projections for the 11th five year plan show a significant increase in production from 2009 when the KG basin is due to commence production However this is balanced against falls in supplies from existing gas fields over the life of the plan Two scenarios are presented by the Indian Government with natural gas production projected to range between 395 and 738 billion cubic metres in 2011 in the normal and optimistic scenarios respectively The Indian Government has stated that there are a number of uncertainties surrounding the commencement of supplies in the optimistic scenario

Gas Supply Outlook

On the gas supply side the domestic supplies would be primarily driven by the expected supply from the KG basin by RIL in 2008-09The supply projected by ONGC in the Plan period is expected to fall from 4728 MMSCMD in 2007-08 to 32 MMSCMD in 2011-12 andSupply from Private playersJVs is expected to increase from 2326 MMSCMD to about 5722 MMSCMD in 2011-12This increase from private players is primarily due to the 40 MMSCMD gas supply addition from RIL from 2009-10 onwards DGH has projected expected additional supplies of 20 30 and 40 MMSCMD from RIL fields in 2009-10 2010-11 and 2011-12 respectively and 54 MMSCMD from GSPC in each of the above years How much of these additional supplies would actually fructify would actually determine the prospects of the domestic supply scenario and would have a profound influence on the overall demand-supply balance These additional supplies have been considered under scenario II an optimistic scenario Keeping the above aspects in view the total projected gas supplies would be 8054 MMSCMD in 2007-08 expected to grow to 1083 MMSCMD in 2011-12 under scenario I (Normal Scenario) In Scenario II (Optimistic Scenario) the supplies would grow from 8054 MMSCMD in 2007-08 to 20230 MMSCMD in 2001-12 The detailed supply projections under the two scenarios are

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

ONGC + OIL (A) 5728 5842 5569 5467 5108

Pvt JVs (As Per DGH) (B) 2326 6156 6028 5842 5722

Projected Domestic Supply 8054 11998 11597 11309 10830

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Gas supply projections (MMSCMD)

Sources2007-08

2008-092009-10

2010-11

2011-12

(A+B)

Additional Gas Anticipated (C)

74 84 94

Total Projected Supply Scenario 1 (A+B)

8054 11998 11597 11309 10830

Total Projected Supply Scenario 2 (A+B+C)

8054 11998 18997 19709 20230

The estimated gap between domestic gas production and supply is mainly on account of internal use by the producers themselves technical flaring and gas shrinkagesLooking at the overall demand projections and even the most optimistic scenario of expected domestic supplies it is very clear that there would be a supply shortfall Therefore there is a need to step up imports in the coming 5 years There is already an import of LNG to the tune of 18 MMSCMD by PLL at Dahej This is being supported by the commencement of LNG supply from the Hazira Terminal of Shell which is however yet to stabilize To augment the shortfall the country is already pursuing imports both through the LNG route and the transnational pipeline route

LNGSupplies through Transnational PipelinesLNG is already an accepted resource in the country India is located in a

region with significant reserves of natural gas India currently has one long term LNG supply contract between Petronet and Qatarrsquos Ras Laffan LNG company for the phased supply of 75 million tonnes a year with 50 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029 While other long term agreements have also been signed including with Iran these agreements have not been finalized and have not been included in the study Some of the main features of Indiarsquos LNG supplies are-

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

The 5 MMTPA Dahej terminal of PLL is operating at full capacityThe Hazira terminal of Shell with a capacity of 25 MMTPA is operational but is yet to stabilize Given the non-stabilisation of Shell Hazira terminal it has been assumed that Shell terminal would operate at 25 MMTPA capacity during next 5 yearsThe Dahej terminal is set to expand to 10 MMTPA by 2010-11 Besides the planned Kochi terminal of PLL with a capacity of 25 MMTPA (expandable to 5 MMTPA) is expected by 2010-11The 5 MMTPA Dabhol terminal is projected to be fully operational by 2009-10To begin with the supplies would be 12 MMTPA which would increase to 21 MMTPA in 2008-09 to cater to the Dabhol Power plant This terminal would also throw up a merchant sale volume of 29 MMTPA in 2009-10 when long term LNG is contractedThe confirmation of Mangalore LNG terminal could be a possibility and 125 MMTPA imports could perhaps be expected at this terminal by 2011-12 Given this scenario the LNG supply is projected to reach a level of 2375 MMTPA by the year 2011-12 (Potentially it can add up 8312 MMSCMD supplies at full capacity) Though there is a possibility of supply of about 18 MMSCMD of gas from the Myanmar through the proposed MyanmarndashIndia Pipeline in 2010-112011-12 this has not been considered for analysis purpose due to the uncertainties involved Given the present level of inter-Governmental discussions on the other two pipelines viz Iran-Pakistan-India pipeline and Turkmenistan-Afghanistan-Pakistan-India Gas Pipeline no gas supplies have been projected through these pipelines in this study The overall LNG supply projections are given as-

LNG supply projections

LNG Supply Source 07-08 08-09 09-10 10-11 11-12

Dahej 500 500 75 1000 1000

Hazira 250 250 250 250 250

Dabhol 120 210 500 500 500

Kochi - - - 250 500

Mangalore - - - - 125

Total LNG Supply (MMTPA) 870 960 1500 2000 2375

Total LNG Supply (MMSCMD)

3045 3360 5250 7000 8312

Assumptions 1) Hazira expansion to 50 MMTPA is not considered in the study

2) Mangalore terminal is expected to be partially commissioned in 2011-12

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

The import plans of various companies would to a great extent augment the supplies to meet the demand shortfall Given the two scenarios of supply the total supply including LNG is expected to increase from 10099 MMSCMD in 2007-08 to a level of 18142 MMSCMD in 2011-12 under Scenario I (Normal Scenario) Under Optimistic Scenario II the total gas supply is expected to increase from 10099 MMSCMD in 2007-08 to 27542 MMSCMD in 2011-12 especially driven by the additional supply of RIL and GSPC from 2009-10 onwards

Demand ndash Supply Gap for Natural Gas It is expected that there would be a demandndashsupply gap (shortfall in supply) to the extent of 6798 MMSCMD in 2007-08 which would fall to 4281 MMSCMD in 2008-09 in both the scenarios From this level the gap would increase steadily to 9113 MMSCMD by 2011-12 in Scenario I whereas under Scenario II the gap would by and large be bridged from 2009-10 onwards and there is expected to be a demandndashsupply balance during the last 3 years of the XI Plan period The overall demandndashsupply balance is presented below

Overall Gas Demand Supply projections

Supply 07-08 08-09 09-10 10-11 11-12

Projected Domestic Supply (ONGC JV PVT) (A)

8054 11998 11597 11309 10830

Additional anticipated supply (B) 74 84 94

LNG (C) 3045 3360 5250 7000 8312

Total Supply (A+C) Scenario 1 11099 15358 16847 18309 19142

Total Supply (A+B+C) Scenario 2

11099 15358 24247 26709 28542

Demand (MMSCMD) 17917 19664 22552 26207 27943

Demand Supply Gap I 6818 4305 5705 7897 8803

Demand Supply Gap II 6818 4305 -1695 -503 -597

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

CRISIL Research

Demand to grow at a CAGR of 12 over next 5 years

Historically demand for natural gas has always been higher as compared with supply However due to the global slowdown the Indian economy has also started showing signs of cooling demand growth In such a scenario the demand supply gas is expected to shrink over the next 5 years Though natural gas supply (domestic supply and firm LNG imports) is expected to increase at a CAGR of 140 percent it may not be sufficient to service the demand CRISIL expects this deficit to be serviced by the spot LNG cargoes

Lower projected demand is an outcome of CRISIL outlook on power and fertilizer projects With Greenfield power projects getting least priority in the gas utilization policy some of the projects considered may not materialise and therefore the demand supply gap would not arise

Going forward CRISIL expect demand to be driven by growth in captive power plants and growing city gas distribution mainly comprising CNG Also with fertilizers getting the highest priority in gas utilization policy CRISIL expect at least some of the closed units to reopen operations thus increasing the gas demand Increase in captive power plants and city gas distribution will change the consumption mix considerably Share of petrochemicals refineries and sponge iron plants is expected to decrease substantially as there arenrsquot many planned additions in these sectors

Natural gas demand break up

Mmscmd 2007-

082008-09(p)

2009-10(p)

2010-11(p) 2011-12(p) 2012-13(p) CAGR( )

Power 440 566 608 608 668 746 112

Captive power plant

118 124 183 197 216 231 143

Fertiliser 327 333 378 487 569 582 123Petrochemicals 63 64 67 67 67 67 12Sponge iron 48 49 49 49 50 50 10Refinery use 93 98 104 106 109 113 38City gas distribution

53 74 103 137 176 221 328

Total 1142 1309 1491 1651 1856 2010 120

P = projectedNote

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Demand projections do not include the unmet demand that may materialise with gas availability

Source CRISIL Research

2007-2008

power 44

captive power plants 118

fertilisers 327

petrochemicals 63

sponge iron 48

refinery use 93

city gas distribution 53

power

captive power plants

fertilisers

petrochemicals

sponge iron

refinery use

city gas distribution

2012-2013 -P

power 112

captive power plants 143

fertilisers 123

petrochemicals 12sponge iron 1

refinery use 38

city gas distribution

328

powercaptive power plantsfertiliserspetrochemicalssponge ironrefinery usecity gas distribution

c

P= Projected

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Source= CRISIL Research

City gas distribution to be the main driver for demand growth

Demand from city gas distribution which includes the compressed natural gas (CNG) stations piped natural gas(PNG) to industries for heating and domestic and commercial PNG account for 5 percent of total natural gas demand Gas as a heating fuel is used in many industries such as ceramics paper metals automobile components chemicals textiles food processing and tea

City gas distribution is expected to boost the demand for natural gas It is expected to record a CAGR of over 325 percent as many companies have been aggressively announcing plans for city gas distribution City gas distribution is also getting a boost from the government City gas distribution plans getting higher priority than the green field power plants proves the fact that government as liquefied petroleum gas (LPG) and superior kerosene oil(SKO) consumption would reduce

CNG is expected to grow at a rate lower than the overall city gas distribution growth rate Currently CNG demand is around 38 mmscmd and accounts for over 71 percent of the city gas distribution demand PNG is still to pick up pace and hence going forward PNG and industrial usage are expected to grow faster as compared to the CNGMost of the industries mentioned earlier use the costlier fuel oil or naphtha either for heating purposes or as a raw material or feedstock This fuel feedstock or raw material can be easily substituted with natural gas Even spot LNG is priced lower than naphtha or fuel oil Hence any gas availability will prove to be beneficial for these industries With gas supply situation poised to change from 2009-10 the industries currently operating on naphtha or fuel oil are expected to switch to gas

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Fuel Price Comparison

0

5

10

15

20

25

indi

geno

usna

tura

l gas

LNG

-P

oole

d

LNG

($

10m

mbt

u)

Coa

(dom

estic

)

Coa

l(im

port

ed)

Nap

htha

Fue

l oil

($ p

er m

mb

tu)

Series1

Note- 1 Prices are exclusively of transportation cost and sales tax2 Exchange rate at Rs425 per dollar3 Domestic natural gas price is landfall price inclusive of royalty4 LNG price has been calculated on the basis of $493 per mmbtu and 9500

kcalscm5 Domestic coal prices are for lsquoErsquo grade at pithead and includes royalty6 Coal(imported)prices are landed cost of coal(campf Australia)for 2007-087 Naphtha amp FO prices are average prices during FY2007-08

Source=CRISIL Research

In 2007-08 shellrsquos Hazira terminal operated at over 80 percent even when some spot LNG cargoes fetched prices as high as $ 20 per mmbtu Also during the same period naphtha consumption declined This proves that industries are favouring LNG over naphtha even at such high rates In the first quarter of 2008-09 price of fuel oil and naphtha have spot up even higher thereby increasing the demand for LNG As the power and fertilizers sector require large quantities of gas they prefer long term gas contracts Hence the most of these spot cargoes would have been sold to other industries At average price of over $13mmbtu for LNG though fuel oil will become competitive with LNG naphtha will continue to be the costliest energy source and gas will be preferred instead

The heating requirement of industries is expected to increase at a CAGR of over 35 percent while the PNG demand(domestic and commercial) is expected to grow the fastest at a CAGR of over 49 percent

Power and fertilizers-will continue to be major consumers

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

The power and fertiliser sectors have historically been the major consumers of gas and are expected to retain their share in the demand for natural gas In 2007-2008 the two sectors together accounted for around 67 percent of the total demand However they accounted for 65 percent of the total off take of gas in 2007-08 historically also the demand from these two sectors has always accounted for more than 65 percent of the total demand Going forward as well we expect most of the demand to come from these two sectors In 2007-08 demand from the power and fertilizers sectors together was 766 mmscmd which is expected to increase to around 133 mmscmd in 2012-13 and is expected to have a 66 percent share of demand

Demand from the power and fertilisers sectors is expected to grow at around 116 percent while the total demand is expected to grow at around 12 percent hence both the sectors together will be able to maintain their share of demand Demand has been estimated based on the gas utilization policy availability of gas supply in the area expected new capacities as well as switch in fuel by existing capacities Currently power accounts for around 38 percent and fertilisers for 29 percent of the total demand for gas in 2012-13 we expect power to continue to account for 37 percent of total natural gas demand and fertilisers for around 29 percent

Power

Power capacities using natural gas as fuel accounts for almost 102 percent of the total power generation capacities Our country has been facing huge power deficit situation and this situation is expected to continue till 2012-13 Hence the government is taking initiatives to increase power generation and is encouraging thermal as well as hydel power capacities As a result demand from the power sector is expected to grow at a healthy rate

CRISIL research has assumed a realistic outlook on gas-based power plant additions based on current project status and gas availability The rising demand for natural gas from the power sector is attributed to the expected capacity switches as well as new expected additions CRISIL expect gas demand from around 7900MW of capacities over the next 5 years Of this around 4110 MW would be switch capacities while 3880MW would be contributed by new additions Some of the major projects not considered by us during the projection horizon are reliance power limitedrsquos Dadri power project(3560 MW)National Thermal Power Corporationrsquos Projects at Kawas and Gandhar(2600MW) Maharashtra State Electricity Boardrsquos 1040MW plant in Uran and Karnataka Power Corporation Limitedrsquos project at BidadiKarnataka(700MW) These projects have not been considered as fuel supply agreement(FSA) has not yet been signed nor has land been acquired Hence CRISIL do not expect these projects to be ready for commissioning before the end of 2013 Also we have not included government projects of over 10000MW in our projections because of our outlook on capacity additions in the power sector

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

By 2012-13 the share of natural gas in the power sector is expected to decrease from the current 102 percent as we expect lower additions in power plants using natural gas as fuel With green field power plants getting last priority in gas utilization policy CRISIL Research expects that some of the gas based power plants planned may not materialise while coal based power plants would get encouragement

Natural Gas-Demand forecast for power generation

(MW) 2006-07

2007-08E

2008-09P

2009-10P

2010-11P

2011-12P

2012-13P

Gas-based capacity 11446 14730 15824 15824 17409 19435Existing capacity 9631Cumulative additions

370 1194 1570 1570 2220 4247

Cumulative switch 1445 3906 4624 4624 5558 5558Gas requirement (mcm)

16043 20646 22179 22179 24400 27241

Incremental demand

2544 4604 1533 0 2221 2840

Naphtha-based capacityNaphtha requirement (lsquo000 tpa)

4159 2116 1390 1332 840 210

Incremental demand 0 -2043 -726 -58 -493 -630

E Estimated P Projected

Assumptions

1) PLF of 80 has been assumed except for kayamkulam and kochi which are assumed to have a PLF of 70

2) Calorific value of natural gas has been assumed at 9000 Kcalscm3) Calorific value of naphtha has been assumed at 10500 Kcalkg4) Heat rate of power plants has been assumed at 1800 Kcal kwh5) Conversion from MW to mcm = MW10003652408(18009000)10^6

Source CRISIL Research

Fertilizers

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Demand for natural gas from the fertilisers sector is based on our outlook for the fertilisers sector The government has emphasised that fertilisers plants based on naphthafuel oilLSHS should convert to natural gas by march 2010 failing which the higher production costs would not be reimbursed As a result fertiliser players have been under pressure to convert to natural gas Also the high costs of naphtha and fuel oil have been instrumental in accelerating the switch The government has come out with gas utilisation policy which gives the priority list for supply of gas from the new finds As per this policy existing fertiliser units get the top priority for gas supply amongst the existing plants Also the green field fertiliser plants have got the top priority in the green filed projects priority list Based on the availability of gas fertiliser plants will either switch to gas or close down operations till gas becomes available Over the next 5 yars we expect gas demand from over than 133 mtpa of fertiliser capacities of which almost 57 mtpa will come through switches

(lsquo000 tpa) 2006-07

2007-08 E

2008-09 P

2009-10 P

2010-11 P

2011-12 P

2012-13 P

Gas based capacity 17070 17420 19736 25440 29732 30442Existing capacity 13102Cumulative additions 0 244 2560 5326 7636 7636Cumulative switch 3967 4074 4074 7012 8994 9704Gas requirement (mcm) 11919 12164 13781 17764 20761 21256Incremental demand 1782 245 1617 3983 2997 496

Naphtha based capacity 1992 1885 1885 779 380 0Naphtha requirement 1195 1131 1131 467 228 0

FOLSHS-based capacity

1502 1502 1502 0 0 0

FOLSHS requirement 841 841 841 0 0 0 E Estimated P Projected

Assumptins1 operating rates

Naphtha 100 Gas 105FOLSHS 100

2 Calorific valueGas 9000 kcalscmNaphtha 10500 kcalkgFOLSHS 9600 kcalkg

3 Input norms

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Gas=0665 scm per tonne of urea Energy reqt for urea has assumed at 6 million kcaltonneNaphtha= 06 tonnes per tonne of ureaFOLSHS = 056 tonne per tonne of urea

4 New capacities would be commissioned based on gas availabilitySource CRISIL Research

Research Methodology

sample

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

For the purpose of completion of this project employees were interviewed The sample size of 30 employees were taken in order to come up with the result

Sample technique

Sampling technique convenience sampling

Tools amp techniques for data collection

Tools amp techniques for data collection as follows

Statistical Tool Ranking Scale

Research Design Descriptive Study

Primary data collection

Questionnaires were being filled up by the EmployeesInterview were given by Mr Shantanu Basu(ManagerGas Marketing)

Secondary source of data collection

Various internet sitesbooksvarious reports were searched in order to find information useful for completion of this project

Data Analysis and Interpretation

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

1 40 employees think that reason for growing demand in natural gas in india is its lower cost

2 30 employees think that reason for growing demand in natural gas in india is Govtregulations

3 20 employees think that reason for growing demand in natural gas in india is its eco friendly qualities

4 10 employees think that reason for growing demand in natural gas in india is its efficiency in comparison of other fuels

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

1 55 employees think that the obstacles for demand for natural gas as a fuel in India is its non availability of natural gas

2 20 employees think that the obstacles for demand for natural gas as a fuel in India is its poor infrastructure

3 15employees think that the obstacles for demand for natural gas as a fuel in India is its improper supply management

4 10employees think that the obstacles for demand for natural gas as a fuel in India is its high cost

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

1) 45 employees think that power sector is the key demand driver for natural gas 2) 30 employees think that fertilizer sector is the key demand driver for natural gas

3) 15 employees think that transportation sector is a key demand driver for natural gas 4) 11 employees think that city gas distribution sector is a key demand driver for natural gas

5)9 employees think that other sector like sponge iron refinery etc are the key drivers for natural gas

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

1) 45 employees think that in western regionthe consumption of natural gas is more2) 35 employees think that in northern regionthe consumption of natural gas is more3) 15 employees think that in southern regionthe consumption of natural gas is more4) 5 employees think that in eastern regionthe consumption of natural gas is more

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

1) 65 employees think that Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

2) 15 employees think that Gail generated a maximum demand for natural gas with Mahanagar Gas Limited(MGL)

3) 10 employees think that Gail generated a maximum demand for natural gas with Bhagyanagar Gas Limited(BGL)

4) 6 employees think that Gail generated a maximum demand for natural gas with Green Gas Limited(GGL)

5) 4 employees think that Gail generated a maximum demand for natural gas with Aavantika Gas Limited(AGL)

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

1) 40 employees think that people are still not ready to accept natural gas because of lack of awareness

2) 25 employees think that people are still not ready to accept natural gas because it is not easily available near home

3) 20 employees think that people are still not ready to accept natural gas because of its high cost

4) 15 employees think that people are still not ready to accept natural gas because of fear of using natural gas

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

1) 80 employees think that Reliance Industry Limited(RIL) is a close competitor of Gail

2) 20 employees think that Gujarat State Petroleum Corporation(GSPC) is a close competitor of Gail

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

1) 55 employees think that by 2011-12 natural gas may accomplish 10 market share in total fuel market in India

2) 30 employees think that by 2010-11 natural gas may accomplish 10 market share in total fuel market in India

3) 15 employees think that by 2013-14 natural gas may accomplish 10 market share in total fuel market in India

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

1) 66 employees think that India may not become a self sufficient wrt Natural gas

2) 34 employees think that India may become a self sufficient wrt Natural gas

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

KEY FINDINGS

The main reason for growing demand for natural gas in India is its less cost as compared to other fuel

The obstacles for demand for natural gas as a fuel in India are- non availability of natural gas and poor infrastructure

Power and fertilizer sector are the key demand driver for natural gas

Northern and Western region have more demand for natural gas as compared to Southern and Eastern region because of Industrialisation in these region

Gail generated a maximum demand for natural gas with Indraprastha Gas Limited(IGL)

Reliance Industry Limited(RIL) is a close competitor of Gail

Price and Government regulation affects the demand of natural gas

Gail has a different JVrsquos to deal with people they donrsquot want to do directly because it includes high cost for setting up their own service stations

Gail is going to do collaboration with Reliance Industry Limited(RIL)

Demand projections indicate robust growth in gas demand over the eleventh plan

period Demand is projected to rise from 179 mmscmd in 2007-08 to 281

mmscmd by the year 2011-12

The domestic supply of gas during the eleventh plan period is expected to rise

sharply mainly on account of the recent discoveries in the KGBasin The

domestic gas supply figure estimates are 81 mmscmd in 2007-08 going up to 202

mmscmd by 2011-12 in optimistic scenario

The continuous shortfall of natural gas supply led to import of LNG which lead to

Indiarsquos recognition as a serious player in international gas market Import of LNG

which commenced in 2004 for the first time is projected to increase to 2375

mmtpa (8312 mmscmd) during the eleventh plan period with new LNG

regasification terminals being set up in the country

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Gas Sector requires large investments in setting up of terminals pipeline

infrastructure processing facilities city gas networks It has been projected that

around US $ 10 bn would be required by the natural gas sector during the next 2-

3 years to meet the requirements in India

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

RECOMMENDATION

Energy Diversification

Diversification of Indian energy supply sources is essential pre condition for

energy security Natural gas from wells (conventional sources) alone will not be

sufficient to meet the growing requirement of the expanding economy There is a

need to pursue with all earnest viable alternatives like gas hydrates coal bed

methane gas from deep-sea underground coal gasification (UCG) and gas

storage in the upstream side CNG by ships and on-board LNG re-gasification in

the midstream side etc Such diversification will help us in managing the

imbalance in the production and consumption of gas in the country

Infrastructure Support

The development of sound gas sector in India requires robust infrastructure support in terms of physical facilities like pipelines LNG terminals rigs turbines CNG kits compressors gas based automobiles etc The financial infrastructure can be in terms of provision of competitive credit facilities tax concessions tax holidays etc In addition to this development of a pool of skilled human resources is a sine qua non for supporting the likely growth in the sector

Spread awareness

The emergence of private initiative will further increase the awareness among

people about the likely beneficial uses of natural gas and consequently demand for a

cleaner green fuel escalates to new highs

Pricing mechanism

There is a need to review pricing mechanism for natural gas both for domestically

produced gas as well as LNG Let the price be determined by free play of market

forces of demand and supply

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Government regulation

PNGRB is evolving in their functions as sector regulators Govt should enlarge their

role as independent and transparent regulator

More Joint ventures Gail should exploit the northern belt and tie up with companies located near the belt In gas marketing the eastern belt(Bihar west Bengal) should be tapped as there is tremendous potential as well as opportunity which can be harnessed

Retain their customers

The emergence of new players and extent of market liberalization may pose a threat to Gail and the essence to combat the creeping competition is by retaining the existing customers and creating sound prospects This can be done by creating both tangible and intangible benefits

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Conclusion

In Tenth Five Year Plan (2002-07) Indian economy grew at a healthy rate of 77 per

year while during the same period total primary energy consumption in India has

increased from 3078 million tones of oil equivalent (mtoe) in year 2002 to 4044 mtoe in

year 2007 showing a CAGR of 561 The demand for energy has been growing rapidly

with the growth of the economy changes in the demographic structure rising

urbanization and socio-economic development In this perspective the progress is very

encouraging however the resulting fall out in the form of increasing demand for energy

resources is a complicated task to manage A look at the Indian energy consumption by

fuel type reflects that coal and oil are predominant sources of energy followed by natural

gas In 2007 natural gas accounted for around 9 of the total primary energy

consumption

In India the demand for natural gas is traditionally being driven by power and fertilizer

sectors with city gas distribution (CGD) and industrial sectors emerging as growing

markets for utilization of natural gas In 2007 power and fertilizer sectors together

constitute around 63 of the total natural gas consumption in the country

Indiarsquos integrated energy policy envisages fulfilling energy demand of all sectors across

country with safe and convenient energy at the least cost in a technically efficient

economically viable and environmentally sustainable manner Natural gas is relatively an

eco-friendly clean safe fuel with higher thermal efficiency and easy transportability The

merits of natural gas over alternate hydrocarbon fuels underscore its increasing

significance in the energy policy of India and are pushing it to focus of all the

stakeholders in the value chain

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Gas Demand

The Indian economy is projected to grow at 9 on an average during the XIth Five Year

Plan period from 2007 to 2012 This ambitious economic growth will drive the demand

for natural gas in the country The demand for natural gas will be 19664 million standard

cubic meter per day (mmscmd) during 2008-09 which will escalate to 27943 MMSCMD

at the end of 2011-12 The share of different sectors in the total demand is projected to be

changing during the entire eleventh plan period The share of power sector in total

demand is presumed to be increasing from 464 in 2008 to 453 in 2012 Similarly the

fertilizer sectorrsquos share will increase from 218 (in 2008) to 273 (in 2012) It can be

seen that just like present demand scenario in future also the demand for natural gas in

India will be primarily driven by power and fertilizer sector

The share of City Gas sector Industrial sector Petrochemicals Refineries Internal

Consumption (like LPG) sector and Sponge Iron Steel sector will be decreasing in the

overall demand The share of city gas sector will decrease from 66 (in 2008) to 57

(in 2012) Industrial sector will have a share of 82 in 2008 which will come down to

7 in 2012 Petrochemicals Refineries Internal Consumption sector will share 138

of total natural gas demand in 2008 which will go down to 119 in 2012 Sponge Iron

Steel sector will see its share in total demand decreasing from 33 in 2008 to 28 in

2012

The scope of demand within a particular sector can be better understood by the usage

pattern of gas and other alternative fuelsfeedstock in its units For instance in the Power

Sector only 11 of total power generation capacity is based on gas whereas in the

Fertilizer sector about 58 of production is based on gas The corresponding figures of

gas based units in the Petrochemicals and LPGLiquid Hydrocarbon sectors are 43 and

31 respectively

The demand for natural gas during the period 2007-12 will be growing with a

compounded annual growth rate (CAGR) of 929 (17917 in 2007 to 27943 mmscmd

in 2012) to match the projected growth rate of 9 for the economy However to meet

such a huge demand will be a complicated task

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Gas Supply

India remains a gas deficit country as its domestic gas resources are yet to be fully

exploited for production The NELP has pushed forward the exploration and production

activities but the desired results are yet to be achieved

The Xth Plan period (2002-07) witnessed some significant developments in the gas

supply side scenario Reliance announced gas discovery of around14 trillion cubic feet

(tcf) in 2002 in the KG basin on the east coast of India In 2004 first batch of imported

Liquefied Natural Gas (LNG) arrived on Indian shores when Petronet LNG Ltd (PLL)

started commercial supplies of LNG from its 5 million tonnes per annum (mtpa) Dahej

terminal In 2005 Shell (India) Ltdrsquos 25 mtpa LNG terminal became operational This

was the first private sector firm to enter the gas supply segment In 2006 Ministry of

Petroleum and Natural Gas (MoPNG) revise the prices of APM gas to make it in

synchronization with open market prices of gas

The above events have influenced the supply scenario in the country The supply

projections for XIth Five Year Plan indicate supply to be increasing from 8054

MMSCMD in 2007-08 to 1083 MMSCMD in 2011-12 with a CAGR of 61 under

normal scenario The CAGR of natural gas supply at 61 is lesser than the CAGR of

its demand at 929 during the plan period of 2007-12 indicating the requirement of

imports

In optimistic scenario the supplies would grow from 8054 MMSCMD in 2007-08 to

20230 MMSCMD in 2011-12 The optimism is due to likelihood of additional gas finds

in the country including Reliance KG Basin gas find

The gap in demand and supply of natural gas under normal scenario for a year as a

percentage of total supply ranges from 64 to 158 of total supply for that year

reflecting the scope of imports in the country The shortfall of domestic supplies will

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

primarily be met with LNG imports The total LNG imports in the country are projected

to increase from 3045 mmscmd in 2007 to 8312 mmscmd in 2012 The import of LNG

as percentage of total demand in the country ranges from 17 in 2008 to around 30 in

2012

Thus despite imports of LNG India will still face short supply of gas to meet its demand

One of means to calibrate the shortfall of gas is to allow price determination of natural

gas by the free forces of demand and supply

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Scope of further study

1) To study the Impact of Krishna-Godaviri(KG)Basin on Natural Gas market

2) Gail is going to do collaboration with Reliance Industry Limited(RIL) To study the paradigms for that collaboration

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Annexure

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Questionnaire

NAME Designation This survey has been designed to better understand the different prospects of natural gas in India Your feedback is of high importance to my project I humbly request you to give your feedback as per your convenience

Plzprioritize on a scale of 1 to 5hellip1 for the minimumhelliphelliphellip5 for the maximum (Q1 to7)

Q (1) what are the reason for growing demand of natural gas in Indiaa) Less cost as compared to other fuel( ) (b) More efficient than other fuel( )c) Eco friendly( ) (d) Govt regulation( ) e) Otherhellip (plz specify)

Q (2) what are the obstacles for demand for natural gas as a fuel in india a) non availability of natural gas( ) b) high cost( )c) poor infrastructure( ) d) improper supply management( )

Q (3) which sector is the key demand driver for natural gasa) power sector( ) b) fertilizer sector( ) c)city gas sector( )d) transportation sector( ) e) otherhelliphelliphelliphelliphelliphellip(plz specify)

Q (4) In which region the consumption of natural gas is maximuma) northern region( ) b) western region( ) c) southern region( ) d) eastern region( )

Q (5) In which region the consumption of natural gas is minimuma) northern region( ) b) western region( )

c) southern region ( ) d) eastern region( )

Q(6) why people are still not ready to accept natural gas instead of other fuelsa) lack of awareness( ) b) non availability easilynear home( ) c) fear ( ) d)high cost as compared to other fuel( )

Q(7) who is your close competitora) RIL(Reliance Gas Limited) b) GSPC( Gujarat state petroleum corporation)c) Othershelliphelliphelliphelliphelliphelliphelliphelliphellipplz specify

Q(8) by what time natural gas may accomplish 10 market share in total fuel market in indiaa) 2009- 2010 b) 2010 ndash 2011 c) 2011 ndash 2012 d) 2012 ndash 2013 e) 2013-2014

Q(9) what do you think wheather India may become self sufficient in natural gas

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

a) if yeshelliphellipby what timeb) if nohelliphellipwhy so

Personal interview

Q1) Does the price affect the demand of natural gas

Q2) Are you targeting any other sector than the existing sectors for increasing the demand of natural gas

Q3) Gail estimated the future demand according to the different scenario(pricemmbtu) what are the criteria to select such scenario

Q4) GAIL is a market leader in this sector but now private companies such as Reliance Industry Limited entered in to this business What do you think how it will affect the demand or market share of GAIL

Q5) From the data it shows that you have a less demand in southern and eastern region of India as compared to northern and western region of India What are the reasons behind it

Q6) Does Gail provide any subsidiary to those customer who are demanding more quantity of natural gas

Q7) How the govt interventionregulations affect the demand of natural gas

Q8) Donrsquot you think if GAIL supplies directly to the customer specially in city gas and transportation sector then the cost is reduced and the profit and the demand may increase

Q9) GAIL estimated the demand of natural gas before also so did you achieve that projected demand What was the result at that time

Q10) What are Gailrsquos future plans for increasing the business wrt natural gas

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Conversion Table

1 Bcm 1 year of gas= 28 MMSCMD

1 TCF of gas reserve= 4 MMSCMD

1 MMTPA of LNG=4 MMSCMD

1 MT of LNG=1300 SCM

GCV=1000kcalscm

NCV=90of GCV

1 mmbtu=252 smd

1 kilolitre=62898 Barrels

1kilocaloric(kcal)=4187kj=3968btu

1kilojoule(kj)=0239kcal=0948 btu

1 btu(british thermal unit)=0252kcal=1055kj

Gas required for 1 MW of power Generation=4500 scmd

Power generation from 1 mmscmd gas=220 MU

WhereSCMD Standard Cubic meters per day

MMBTU Million Metric British Thermal unit

Mmbtpa=million metric british thermal per annum

GCV=Gross Calorific Value

NCV= Net Calorific Value

Mu=metric units

Scm=standard cubic meter

MTOE= million ton of oil equivalent

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Demand Projections By Various Agencies for Natural Gas

Energy and Tourism with assistance from BHP Billiton Petroleum Pty Ltd and Santos Ltd to find out the prospects for LNG imports found the following demand and supply gap for India-

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

Potential gas demand and supply balance ndash India

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom

References

Books

Gail infraline-2006

Encyclopedia of petroleum Reports

Credit Rating Information Services of India Limited(CRISIL Research)

Marketing amp development Research Associates(MDRA)

Eleventh five year plan report

GAIL annual report-2007-08

Websites wwwgailonlinecom

wwwmopngcom

wwwpowerinnicin

wwwpetroleumnicin

wwwteriinorg

wwwieaorg

wwwbpcom

wwwgooglecoin

wwwwikipediacom