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Natural gas: Fueling India's growth
Sep 16, 2008

India is the second fastest growing economy in the world. And a growing economy needs lots of energy. With about 70% of India’s crude oil consumption coming from outside of the country, its growth prospects are left vulnerable to external events. Hence finding domestic sources of energy is a matter of top priority for India. Increasing demand
Natural gas currently forms about 8% of India’s total energy basket as compared to the world average of 24% (Source: BP Statistical Review 2007). The power sector, which is a key barometer of industrialisation, consumes around 36% of the total natural gas sales in India. It is likley to go up to 45% by FY12. Another major user of natural gas- the city gas distribution segment – is set to witness investments of around US$ 49 bn into the segment in the next 5 years (Source: Petroleum and Natural gas Regulatory Board).

Increasing supply
Of late, India has made significant progress in the direction of discovering natural gas in India. There has been a spate of domestic discoveries in natural gas by Reliance Industries (RIL), Gujarat State Petroleum Corporation and ONGC. Moreover, the blocks from the recent rounds of New Exploration Licensing Policy also hold potential for finds in the years to come.

The world over, liquefaction capacity has increased by 75% in the past 10 years from 87 m tonnes per annum (MTPA) to 150 MTPA. The share of Liquefied natural gas (LNG) in global gas trade has grown from 14% to 26% due to contractural flexibility, price review option and destination flexibiltiy. LNG imports are already being made at Dahej, Gujarat by Petronet LNG and at Hazira by Shell. India’s LNG import capacity is further likely to increase by Petronet’s 5 MTPA expansion at Dahej and a greenfield project in Kochi. A new terminal is also being commissioned at Dabhol. With increased capacity, LNG will be one of the major sources of natural gas in the time to come.

Other reasons for optimism
The sector is fairly vibrant with multiple players present in the upstream, midstream and downstream segments. A new gas pipeline policy has been announced by the Government of India and a new Petroleum and Natural Gas Regulatory Board has been constituted. There is also regulatory movement towards market determined gas price (in sharp contrast to heavily subsidised liquid fuels). As a result, the sector is set to witness a jump in realization rates and better cashflows. The Government of India is also paying attention to the transnational gas pipelines such as the Iran-Pakistan-India and the Turkmenistan-Afghanistan-Pakistan-India pipelines.

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