The last six to seven years have seen a dramatic change in the way natural gas fits into the energy equation of India. The foundation of the industry was laid way back in 1950s [with the Oil and Natural Gas Corporation (ONGC) and GAIL]. But the real impetus was provided with the entry of the private sector into Exploration and Production (E&P) through the New Exploration Licensing Policy (NELP) along with the efforts of public sector undertakings. Since then, the sedimentary basins of India – Bombay High, the Cambay Basin, the Krishna-Godavari (KG) Basin, the Mahanadi Basin, and the Cauvery Basin – have seen some notable natural gas discoveries. The KG Basin has been the most successful of these, with large discoveries by Reliance Industries Limited, Gujarat State Petronet Limited and ONGC. These discoveries have triggered the need for downstream pipeline infrastructure and stimulated demand from user industries such as power, fertiliser, city gas distribution, refining and steel.
Even so, the country is expected to face a demand-supply imbalance, at least in the medium term. Say’s Law in economics tells us that “supply creates its own demand”. And this is most apt when attempts are made to estimate gas demand. Conservative estimates predict current demand at around 260 million standard cubic meters per day (mmscmd) while supply is around 170 mmscmd. This unmet and potentially explosive demand, coupled with gas flowing from the discoveries and development of transnational pipelines and terminals, is expected to lead to a far larger country-wide gas market, providing opportunities across the value chain. It is expected that the gas industry will drive investments to the tune of over $25 billion in the next five to seven years.
For now, the supply side in India is clearly being driven primarily by NELP. With only around 20 per cent of total sedimentary area under the “Well Explored” area, there is much ground left to cover. From the “explored areas”, 51 discoveries have been reported, and two have already started production. Several other blocks have potential so gas supply could increase significantly in the near to medium term. In addition, coal bed methane production has started recently and plans are afoot for investments in underground coal gassification. Given India’s huge coal reserves, this would improve the supply situation in the times to come.
In addition to domestic sourcing, infrastructure to land liquefied natural gas (LNG) into the country is also being enhanced. Besides, the existing LNG terminals at Dahej and Hazira, two under-construction terminals at Kochi and Dabhol and the additional LNG terminals at Mundra, Ennore and Mangalore are under active consideration. This infrastructure would be able to land LNG from the Gulf countries. Also, there are plans to supply gas through a pipeline from gas-rich Turkmenistan, under the recently signed Inter-Governmental Agreement for the Turkmenistan-Afghanistan-Pakistan-India transnational pipeline.
New gas sources such as gas hydrates and shale gas would enhance availability in the long run. However, such sources have environmental challenges. Shale gas has dramatically altered the energy scenario in the US in the last four or five years. We have had our own success in the recently discovered shale gas reserves in the Damodar Valley, the first shale gas discovery outside the US and Canada. The petroleum and natural gas ministry plans to invite investments in shale gas E&P in a few months. Shale gas may prove a game-changer.
Clearly, the gas supply side story looks promising. But is there infrastructure to take it to the load centres?
My colleagues P Ramesh, Rakesh Jain and Sunil Kundu who track developments in this area express concern on gas carriage-related matching infrastructure developments.
At present, there are only two cross-country pipelines to transport gas from sources to demand points. However, with the formation of the Petroleum & Natural Gas Regulatory Board (PNGRB) – the regulatory body for promoting the oil and gas downstream industry – plans are afoot to develop an entire gas grid that supplies gas to various parts of the country. Three cross-country pipelines have already been bid out. This apart, appropriate infrastructure development through city gas distribution (CGD) networks that take pipelines to domestic, industrial and commercial users are underway. Thirteen CGD cities have already been bid out and another 240 cities over the next few years are being readied. Thus, the blueprint for development of infrastructure to supply gas to the consumption points has been thought through. The bidding process has, however, been moving in fits and starts, partly due to policies and in part owing to lack of clarity on gas availability. It is essential that decision-makers get their act together and focus on addressing this important link in the gas value chain.
Policy on gas allocation, a critical enabler, has been completely erratic and has, therefore, been a big stumbling block to confident value-chain development. After much prevarication, it appears some transparency is being attempted in the allocation with parameters being laid down for the allocation of gas. But even this seems to be driven by compulsions of specific areas of influence rather than a well-thought out framework.
Gas pricing has been the other concern area in which there have been flip-flops. An empowered Group of Ministers and the country’s courts have been embroiled in this. All this has led to a lack of clarity and consequent investment uncertainty vis-à-vis at what price gas would be available. Though the need for adequately incentivising gas producers to invest in the exploration and production of gas cannot be underestimated, there is also a need for ensuring that the price works for the user segments. The argument favouring an independent energy regulator who balances conflicting pulls and pressures with what is good for the long-term development of the country requires emphasis. Though the establishment of the PNGRB as the regulatory body is a step in the right direction, its powers are limited to regulating only mid-stream and downstream segments. The upstream E&P segment is not under its purview. The current regulatory environment is hydra-headed and encompasses the ministry of petroleum and natural gas, Directorate General of Hydrocarbons, PNGRB and, often, empowered Groups of Ministers and the judiciary.
A fully empowered regulatory body with powers to regulate all constituents would go a long way towards an orderly development of the value chain including resolving some of the emerging issues in the sector like pooled pricing, streamlining the taxation regime for E&P and clarity on the taxation structure on gas swapping.
As we learnt in high-school science, it is about change of state — solid to liquid to gas. We are progressing!
The author is the chairman of Feedback Ventures
The views expressed are personal
vinayak@feedbackventures.com
