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Natural Gas: Bright future ahead

Jun 4, 2003

The major source of energy generation in India is coal. This apart, other sources include crude oil, natural gas and lignite. However, nuclear energy and hydro electricity also forms a small part of this. In the current article, we take a look at the importance of natural gas as an energy source. Though natural gas share as an energy generator has increased marginally in the past decade, we believe that the segment growth will pick up in the current decade.

Natural gas is a feedstock mainly in user industries like utilities, fertilizer and petrochemicals. Increasingly, these user industries are realizing the advantages of natural gas over other feedstock like naphtha and coal. Natural gas is a cleaner fuel and thus requires less secondary processes. The only disadvantage using natural gas is in transportation. The transportation in the gaseous form is difficult and it requires usage of 'liquifier' and 'regassifier' at the site. However, the advantages far exceed the disadvantage.

Due to this, the government is also encouraging the use of natural gas as a feedstock. For this, it too is focusing on raising the country's gas assets either through new exploration or through strategic import tie-ups. The exploration initiative has already shown signs of success.

In what can be considered FY03's largest natural gas discovery, Reliance hit upon 10 trillion cubic feet of gas reserves in Krishna Godavari Basin. Discoveries by ONGC and other players in the exploration front are expected to increase the supply side in the long term. With Reliance's commercial production expected to start from FY06, the share of natural gas as a source of energy is expected to increase. To put things into perspective, commercial production of Reliance natural gas from KG Basin alone will increase the production of natural gas in India by about 50% from existing levels of 30 bn cubic metres.

With the government opening more coal bed methane blocks for exploration, natural gas production is expected to increase in the long term. Secondly, Dahej Petronet LNG, a joint venture between ONGC, BPCL and Gail for importing 7.5 mtpa LNG from Qatar, is expected to commence imports towards the end of FY04. Once that happens, the demand supply mismatch will balance further. This is also encouraging news for gas transporters like Gail and Gujarat Gas. Gail is tapping Myanmar blocks and the fields in Assam and Bangladesh to increase the gas supplies in future. More such initiatives are likely to be directed towards this segment.

Consequently, we believe that natural gas, as a source of energy will see tremendous growth in the coming decade. As India reaches a comfort zone in supply side of natural gas, one may see widespread development based on this feedstock. Participants in this segment, whether explorers or transmission majors will benefit from this upturn going forward.

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