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Business
Imperatives of long term policy
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Natural gas has become increasingly important on the country's energy map as it has become the fuel of choice for many critical industries, notably fertilizers and power, says Sushma Ramachandran.
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Sagar Samrat, ONGC's offshore rig
THE DISCOVERY of huge natural gas reserves off the east coast by Reliance Industries Ltd. (RIL) recently has revived India's hopes of greater self sufficiency in energy. The level of self-sufficiency in hydrocarbons has been rapidly falling in recent years prompting some energy experts to suggest that India should capitalise on its strengths as a large oil importer like Japan.
With the latest RIL find which looks set to become another Bombay High in the natural gas sector, the relatively neglected east coast offshore is likely to become a hot spot for oil and gas exploration activities. The new discovery has also turned the focus on the need for a comprehensive long term natural gas policy covering pricing, sourcing and end-use issues.
Natural gas has become increasingly important on the country's energy map as it has become the fuel of choice for many critical industries, notably fertilizers and power.
These two sectors have been trying to shift to natural gas as all new projects are conceived with gas as the feedstock. As domestic natural gas reserves were limited till now, the focus had been on either importing gas in a liquid form — liquefied natural gas (LNG) — or entering into a contract for gas supplies from abroad through the pipeline route.
There has been greater success with the former option than the latter with work on LNG import terminals having already begun on both the east and west coasts and gas supplies also having been contracted with several major exporters.
The pipeline route has so far been a non-starter largely due to sensitive political constraints. Most natural gas suppliers are located either in West or Central Asia and any land pipeline to India must pass through Pakistan.
As for a sea route, India is not for the pipeline to be laid through Pakistan's coastal waters. This means opting for a deep-sea pipeline that is expensive and technically challenging.
Even so, hopes are being pinned on the prospect of an Iran-India pipeline and working groups have already been formed to study the feasibility of land and sea routes. In contrast, there are as many as 13 projects for LNG import terminals with seven having already tied up LNG contracts.
The public sector Petronet, promoted by a slew of state-owned oil and power companies, is setting up two terminals in Kerala and Gujarat with gas supply coming from Ras Laffan in Qatar.
Another terminal, coming up at Ennore in Tamil Nadu, will also get the gas from Qatar. It is being set up by a consortium, Dakshin Bharat Energy, comprising TIDCO, Unocal, Siemens, Grasim, CMS Energy Asia and Woodside.
LNG preferred supply option
Quite clearly, therefore, LNG has become the preferred option as supplies are readily available from several countries such as Qatar, Malaysia, and Australia. The only hitch is the cost and it is here that consumers are hoping that the new gas policy will seek to cut Central and State levies to ensure that LNG becomes cost effective.
The Reliance gas discovery is thus likely to come as a tremendous relief to an industry apprehensive that gas will become an expensive input. Domestically produced gas is bound to be a cheaper option than imports in this country where demand for the fuel is rising exponentially.
According to the latest official estimates, the present domestic gas supply is 65 million standard cubic metres per day (mmscmd) while demand is assessed at 151 mmscmd for 2001-02. This is expected to rise to 231 mmscmd by 2006-07 and further to 313 mmscmd by 2011-12.
Gas from the field discovered by Reliance with its partner Niko Resources of Canada is estimated at over seven trillion cubic feet.
This is comparable to the west coast gas field in Bassein with an estimated reserve of nine trillion cubic feet that supplies gas to Gujarat, Madhya Pradesh, Haryana, Rajasthan and U.P. through the HBJ pipeline.
Gas supplies from the Reliance-Niko field in the Krishna-Godavari basin could nearly double the present availability of gas but it would even then not be possible to meet the huge domestic demand emerging for this energy source.
Overseas ventures
To buttress these supplies, the public sector oil companies have entered into several equity sharing agreements for oilfields abroad, notably in Sudan, Vietnam and Russia. The Sudan oilfield where ONGC Videsh Ltd. (OVL) has taken an equity stake has oil reserves of over 150 million tonnes with a potential of even more oil and gas in the block. In addition, OVL has an ongoing gas project in Vietnam where the first gas is expected to flow by December this year.
The estimated gas production will be about 7.5 million cubic metres per day of which OVL's share will be 45 per cent.
Another major OVL scheme is the Sakhalin offshore project near Alaska where it would get about five million tonnes annually of oil and eight million cubic metres of gas per day from 2005.
Coalbed methane (CBM) has emerged as another prospective source of natural gas. The Government has already invited bids for CBM in several blocks in the country for which a reasonably good response has been received but the success of this initiative will have to be gauged after some time.
Even the Hydrocarbon Vision 2025, a perspective document laying down the framework for policies in this sector, has pointed to the need for increased focus on natural gas. It notes that gas is emerging as the preferred fuel and feedstock of the future as it is environmentally friendly and economically attractive.
In the medium term, therefore, it suggests that the Government expedite setting up a regulatory framework, provide a level playing field for all gas players and ensure reasonable transport tariffs as well as rationalise customs duty on LNG and LNG projects. There are many related issues in the natural gas sector including the need for an adequate pipeline network within the country and evolution of a fair transport pricing system. Taxation is another important aspect as the Central and State governments are reluctant to sacrifice revenue in this sector. At the same time, high prices of industrial fuels have a cascading effect on the economy and the proposed natural gas policy will have to take this into account.
Besides, the Reliance discovery could be just the tip of the iceberg as experts in the Directorate of Hydrocarbons feel blocks in the offshore areas along the southern coast are also highly prospective.
In this backdrop, it is pointed out that it is time for a clear-cut natural gas policy to be spelt out laying down a regulatory framework for this sector in view of its enormous growth potential.
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