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Natural Gas: Getting out of the shadow of oil - Views on News from Equitymaster
 
 
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  • Jun 9, 2001

    Natural Gas: Getting out of the shadow of oil

    Gas insofar has played second fiddle to its big brother oil, which has been the primary source of energy. However, with benefits of better price competitiveness, lesser by-products, lower plant maintenance costs and environmental concerns gas is getting into the driver's seat. The hydrocarbon is claimed to be the fuel of the future.

    Currently, the key consuming industries in the domestic market are power and fertilizers. Also, petrochemical plants are shifting to gas as their primary feedstock. Several of the new petrochemical plants set up in the nineties are gas based. The two new gas cracker plants of Indian Petrochemicals Corporation Ltd (IPCL) at Nagothane and Gandhar came onstream in the nineties followed by Gas Authority of India's (GAIL) gas cracker at Pata, Uttar Pradesh in fiscal 2000.

    The current demand supply mismatch in the industry is estimated at 316 mmscmd with demand exceeding supply by a multiple of more than 4 times. To overcome this mismatch, reduce the country's oil import bill and cater to the growing need for natural gas the Central Government has launched couple of initiatives to attract investments in the upstream exploration industry.

    Natural Gas Consumption
      Power Fertilisers All Users
    FY91 3,634 5,612 12,766
    FY92 4,774 5,509 14,441
    FY93 4,967 6,672 16,116
    FY94 4,785 6,499 16,340
    FY95 5,229 6,936 17,339
    FY96 6,836 7,602 18,091
    FY97 3,935 7,625 18,632
    FY98 8,114 8,752 21,513
    FY99 8,714 8,869 22,489

    FY - Fiscal Year

    Following up on the New Exploration Licensing Policy - I (NELP) the Government called for bids under NELP - II in fiscal 2001 with 25 oil & gas fields on the block. The Government received bids for 23 of these fields with Oil & Natural Gas Corporation (ONGC), the largest domestic gas producer, bagging 18 of the exploration blocks. The Government also kicked off road shows for coal bed methane (CBM) in New Delhi. It followed this up with two road shows in the United States.

    The Government has put on offer 7 CBM blocks under the current round of bidding. These blocks include two in Jharkhand (Bokaro & Karanpura coal fields), three in Madhya Pradesh (East & West Sohagpur and Satpura coal fields), one in Rajasthan (Barmer coal fields) and one in West Bengal (Raniganj coal fields). CBM is primarily methane gas (80 percent - 95 percent) present in coal or lignite bed seams. The reserves are expected to have a production life of 25 years with a recoverable rate ranging between 25 percent - 30 percent. The last date for bidding is August 31 2001 and the Government plans to award these blocks by the end of this calendar year.

    However, imports are expected to meet a majority of the country's requirements. To facilitate the process and reduce the demand supply gap the finance minister in budget 2002 waived the countervailing duty on liquefied natural gas (LNG), as there are no domestic producers. Several public sector units (PSUs) and leading business houses have proposed to set up LNG terminals on the coastal regions of the country. An estimated 61 million metric tonnes per annum (MMTPA) of LNG terminal capacity has been planned.

    Petronet India Ltd, a joint venture among the leading public sector hydrocarbon companies in the country, has proposed to set up an aggregate capacity of 7.5 MMTPA by 2005. The company, recently, awarded the LNG shipping contract to a consortium consisting of Shipping Corporation of India (SCI), Mitsui O.S.K and Kawasaki Shipping. Much of the country's proposed capacity is to be located in Gujarat. British Gas, the parent of Gujarat Gas Company Ltd., has also planned a 5 MMTPA LNG terminal at Pipavav.

    Recently, the Supreme Court extended the Delhi Government's deadline regarding the plying of only compressed natural gas (CNG) driven public transport vehicles in the national capital region (NCR) to September 2001. Indraprastha Gas, a joint venture between Bharat Petroleum Corporation Ltd. (BPCL) and GAIL, has received a directive from the Supreme Court to increase the number of CNG stations from 9 to 80. The company is the CNG retailer in the capital and commissioned 18 CNG stations in fiscal 2000. Consequently, such directives would have a significant impact on the demand for CNG.

    However, the real action in the sector, it seems, will heat up once the LNG terminal projects in the country are commissioned. This could greatly reduce the demand supply imbalance prevailing in the industry and alleviate the constraints facing suppliers and users of natural gas.

     

     

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