There's much promise in our cities

Indian gas market is transitioning from supply-constrained regional market to a balanced national market. New domestic supplies from the K-G basin have visible positive impact at the macro level and are expected to give a fillip to gas-consuming industries. However, issues relating to gas allocation and pricing mechanism need to be addressed early to ensure that small & medium industries could also leverage this growth driver.

India has been, traditionally, a gas supply deficit nation, with the available supply accretions having failed to keep up pace with rapidly expanding demand. In 2008, before the commencement of K-G D6, the country had a demand for 180 mmscmd against the supply of 110 mmscmd, with significant supplies coming from imported LNG.

This supply deficit was significantly reduced, post-commencement of production from RIL's K-G basin fields. K-G D6 began production in April 2009, reaching 40 mmscmd of production within a month. It currently produces 60 mmscmd of gas. The 11.3 trillion cubic feet (tcf) in the offshore Krishna Godavari basin is the largest gas discovery in India since Mumbai high. Other large indigenous finds and increasing affordability of LNG imports are expected to drive growth in gas demand in the country.

Gas currently constitutes 9% of the total primary energy supply in India. In the medium term, supply is expected to increase to 15% (closer to the global average of 24%). Growing prominence of indigenous gas would have a positive impact on various indicators such as the country's energy import bill, trade balance and GDP output. More visible impact will, however, be on the gas consuming industries.

Power and fertiliser are the largest consumers of gas in India, accounting for 45% and 23% respectively, of the overall consumption pie. Around 15,500 MW (11%) of the total 140,500 MW generation capacity is gas-based. Similarly, 23 mmtpa (56%) of the total 41 mmtpa fertiliser capacity in India utilises natural gas as a feed stock/ fuel. Each mmscmd of gas supplied to the fertiliser segment (either through substitution of naphtha/ fuel oil or urea imports itself) is estimated to reduce the subsidy (and improve the standalone profitability) by Rs 300-500 crore and that supplied to the power segment is estimated to reduce the cost of subsidy by Rs 150-300 crore.

The effect is more wide-reaching in the case of retail consumers and SMEs. More than 250 cities are expected to have developed city gas distribution infrastructure in the medium term.

City gas distribution networks are expected to distribute the economic and environmental benefits of gas to varied segments of users-SMEs, transportation and household consumers. For domestic households, gas is expected to make a green and economic difference in day-to-day life, through its use in vehicles, airconditioning, heating, cooking, etc. Running costs of CNG is 50% cheaper compared with conventional fuels. For small & medium industries such as steel, ceramics and glass, gas as fuel provides better quality and operating efficiencies.

Clarity regarding policy for gas allocation and pricing mechanism (which should be market-linked or controlled or hybrid combination of both) will provide the impetus for downstream small & medium scale investments. Quickly addressing additional issues related to access code, multi-transporter charges, inter-connectivity and gas swapping mechanisms will ensure that benefits of gas would be distributed to a wider base.

Source: The Financial Express, Delhi, 9th August 2010
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