In March-end, Reliance Industries Ltd (RIL) kicked off supply of gas from its field on the country’s coast. Increased availability of gas could drive new usage in the long run. In an e-mailed interview, RIL President & CEO (Petroleum) PMS Prasad shares his insights on how the gas economy would evolve in India.
How do you see the gas market evolving in the country as supply is likely to go up sharply & distribution infrastructure falls in place?
Commencement of gas production from the KG D6 field is a major milestone in India's energy landscape. As gas production from KG D6 reaches 80 million metric standard cubic metres per day (mmscmd), it would nearly double the availability of gas in India, and also eliminate the entire shortfall in gas supplies being faced today by the existing plants in major parts of the country which will be connected to the KG D6 through pipelines. It has several positives for the country, but firstly it proves that the government New Exploration Licensing Policy (NELP) is a step in the right direction. It would be a quantum leap in India's quest for energy security, it would substantially reduce wealth transfer from India to other nations due to energy imports and supply of gas to the core sectors would also bring down subsidy and costs in the fertiliser, power and transportation sectors.
The gas market in India is at an inflection point. The increase in gas supplies due to production from KG D6, as well as the expected production from other discoveries of ONGC, GSPC etc, would not only meet the existing demand, but also promote setting up of brown field and green field projects. The customers in Gujarat and along the HVJ (Hazira-Vijaipur-Jagdishpur gas pipeline) already receive gas from several sources: APM gas (price fixed by the government for gas from old fields/pre-NELP blocks), gas from Panna-Mukta-Tapti fields, Liquiefied Natural Gas (LNG) on term contracts, LNG on spot basis, and they would also have the choice of receiving gas from KG D6.
Gas infrastructure is being developed rapidly. The East West Pipeline would take the KG D6 gas to almost all the major demand centres in India, as it would connect to the existing trunk pipelines as well as regional networks of GAIL and GSPL (Gujarat State Petronet Ltd, which has laid the pipelines in Gujarat). LNG, which so far was being supplied in Gujarat, along the HVJ, and to the Uran region in Maharashtra recently, would also reach Andhra Pradesh soon, thanks to the EWPL. The city gas sector in India is witnessing lot of interest, primarily on account of the expected increase in gas availability. With increase in gas supplies and development of pipeline infrastructure, the gas markets would develop further, thereby benefiting the customers and the country.
Do you see the consumption patterns for gas changing rapidly beyond fertilisers and power? Can increased gas supply and market forces drive new usage?
The power and the fertiliser sectors have been a significant consumer of gas in India so far, primarily because of government policy to make gas available to these sectors at affordable prices. The government would continue to give priority to the power and the fertiliser sectors for supplies of gas, but as the gas supplies increase, the demand and supply to other sectors too would increase. The KG D6 gas has the potential not only to meet the demand from the power and the fertiliser sectors, but even other sectors, like refining, petrochemicals, steel, city gas distribution (CGD) projects, and industrial. The other sectors have so far been using liquid fuel or LPG, and can easily switch to gas, if made available. There is a large unmet demand for power in India today which will also promote usage of gas for generation of distributed power. The transportation sector too has a huge potential to use gas as CNG, which is both economical and eco-friendly compared to the liquid fuels. With gas increasingly becoming a fuel of choice across the world due to increased availability and environment concerns, a number of new gas based applications are being developed. One such application is the development of fuel cells, which promises to meet the total energy requirement of a household through generation of power, hydrogen and hot water from gas. Commercialization of these kinds of applications will result in total empowerment of a household for its energy requirements. Thus we will see a significant increase in gas supplies to the other sectors, which would promote new usage of gas, especially in the CGD, CNG and distributed power sectors.
Are consumer durable makers warming up to the opportunity and developing products (cars, trucks and buses, ACs, geysers) that can run on gas?
In the developed countries, the CGD sector is a significant consumer of gas. However in India, this sector has not developed beyond a few cities, primarily on account of limited availability of gas and pipeline infrastructure. Even in the cities where the CGD sector has developed, the gas supplies have been limited primarily to small industries, transportation sector and households, again primarily due to shortage in gas. Concept of gas based appliances like power gen-sets, ACs, geysers, etc are not new. As gas is made available in more cities, we will see a lot of gas based appliances being developed and offered to the consumers. We expect that the next 5 years will see an increased activity in the CGD and gas based appliances sector.
How do you expect the supply of gas to increase in India in the next 2-3 years? How do you expect demand, including latent, to grow during this period?
The current gas supply in India is around 110 mmscmd and the demand is nearly 200 mmscmd. This gap of around 90 mmscmd can be largely met through KG D6 gas supplies. As we have experienced in the past, supply of gas to the existing industries, would also result in unlocking of latent demand - through small debottleneckings and brown field expansions. There are demand centers in the southern, northern and eastern states of India, which are being connected through pipelines. Besides, CGD, CNG and distributed power sectors would consume additional gas as they develop. With growing environment concerns globally, gas is becoming a fuel of choice. The increased availability of gas would help India in its climate change efforts by encouraging usage of gas in new application as well encouraging switching to gas in older applications wherever possible. All these would increase the demand by another 15 to 20 mmscmd. Thus, over the next 2-3 years, there would still be a deficit of 20-25 mmscmd.
By when will you be able to increase supply to 40 mscmd, 80 and 120 mscmd? I understand it can happen soon...
As per our current estimates, we would reach 40 mmscmd by July and 80 mmscmd by end of this year. It all depends on how well the reservoir performs, and we have encouraging results so far. Let us hope that we are able to achieve a faster ramp-up.
Will the latent demand be enough to take care of this kind of increase in supply? Are new projects being planned to absorb the additonal supply or will be end up with an HBJ-like situation, where it took 12 years to absorb the HBJ supply?
As I said, there is enough latent demand in the country today to absorb the incremental production from KG D6. We expect that the demand from the existing plants is enough to absorb the 80 mmsmcmd production from KG D6, and while there may be some small de-bottleneckings by some of the existing consumers, there would not be a need to promote new projects. Besides the increase in domestic availability of gas, India is also looking to further increase availability of gas from international sources. Setting up LNG receiving terminals and efforts to procure gas from gas-rich countries through transnational pipelines are some of the measures taken by the government to import gas into India. Thus, there exists enough demand for gas in India – both existing and new, and as India continues to grow, the demand for energy too would continue to grow year on year.
By when will the city gas distribution projects come up? You had big plans in city gas...
The CGD sector is an emerging sector in India and the prospects today are better with increased availability in gas and opening up of this sector to competition. RIL has plans to participate in this sector in a major way, as it helps us reach gas to the people directly, which we believe would result in maximum benefit to the people of this country. As you may be aware, the PNGRB recently concluded bidding for some of the smaller towns, and more towns and cities are expected to come up for bidding in future. RIL would bid in some of the cities. We expect that the CGD sector would take some time to develop, as most of the towns and cities have not been developed in a planned manner, building pipeline network in these towns and cities may be a challenging task. Reliance is keen to participate in this sector, and we expect to have a significant presence in this sector going forward.
Is there a network of truck pipelines emerging in the country? How far are we to having a national gas grid?
A network of trunk pipelines is definitely emerging in the country. The East West Pipeline will connect to the other trunk lines and regional networks in India. GAIL is expanding the HVJ network to the northern states of Haryana and Punjab and also in the east upto West Bengal. RGTIL has authorization to develop pipelines in the south and along the eastern coast, from KG D6. Thus we see a quadrilateral of pipelines emerging in India, all of which will be interconnected. As we already have regulations for the pipelines, the customers will have the benefit of receiving gas from various sources through these pipelines. Thanks to the new discoveries and higher availability of gas, the emergence of new demand centres and national pipeline grid, will further spur upstream investments in the country.
