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GAIL: Exploring for options
Aug 30, 2007

We have so far looked at the Gas transmission, LPG and petrochemical segments of GAIL. In this article, we will look at its Exploration and Production (E&P) and Coal Based Methane (CBM) segments. Having started off as a mid-stream company, GAIL has since then made forays into the upstream exploration of hydrocarbons and CBM. Since any significant discoveries have so far eluded the company, we will limit our discussion to various plans being undertaken by the company.

Exploration & Production
Why? GAIL entered into E&P when its core business of midstream and downstream gas distribution was thrown open to competition during liberalisation. Gas could no longer be sourced with certainty on the back of statutory mandates. Moreover, the large gap in gas demand and supply in India made national gas security vulnerable. The company also stood to gain from E&P because it helped integrate its supply-chain, achieve synergies and balance its business portfolio. In addition, the activity opened opportunities to carve out a presence in and beyond Indian shores.

Where? GAIL has an acreage of 1,96,337 sq km. The company has 30 exploration blocks- 26 in India, 3 Myanmar and 1 in Oman. 12 are deep water blocks while 9 are on land and 9 Offshore.

With whom? GAIL has BPCL, Daewoo, Eni India, Gazprom, GSPC, HPCL, IOC, KoGas, JOGPL, ONGC, OIL, Oilex NL, OVL, Videocon, Hallworthy and Silverwave for its partners.

Investment: GAIL invested Rs 4 bn in FY07.The company has set aside Rs 5 bn for capital expenditure in E&P during FY08. The total capex is slated to be Rs 12 bn over the next three years.

Result? The company first succeeded in finding gas in Myanmar and oil in Cambay in 2004. Drilling of oil wells in the Mahanadi and Cauvery offshore has revealed considerable potential for gas.

Future prospects: It is planning to acquire a stake in fields in Iran. It is also eyeing coal bed methane projects. The company will participate as an operator for the first time in an E&P block by the end of Q3FY08 in Rajasthan where it is a partner of GSPC. GAIL also plans to participate in overseas E&P bidding rounds and farm in opportunities in Asia Pacific, Middle East, CIS and Africa.

Coal based methane
Why? It is an attractive source of gas because it is accessible at shallow depths making drilling inexpensive and coal resources are easily located in India. It is particularly attractive in areas where the occurrence of natural gas is unlikely. Commercial CBM production is reported from 3 countries- USA, Australia and China. The major producer of CBM is USA where it contributes about 10% of the total natural gas.

Where? GAIL has won 3 blocks, one in the Rajmahal Coal field, Jharkhand and the other 2 are in Mand Raigarh and Tata Pani Ramkola Coal fields, Chattishgarh.

With whom? GAIL has a consortium with Arrow Energy (India) Pty Ltd. from Australia and EIG Energy Infrastructure Group A. B. Ltd of Sweden. Tata Power Company is also a consortium partner in 2 of the blocks. Arrow Energy is the operator of the blocks. GAIL has an interest of 35% to 45% in the blocks.

Competition: The major Indian CBM players are ONGC, RIL, Essar Oil Ltd. and GEECL.

Future prospects: Gail has signed agreements with RIL and China Gas for pursuing opportunities in CBM among other things.

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