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Gas Allocation Policy, Shri R V Shahi, Former Secretary, Ministry of Power

Allocation of gas to different sectors of economy has always remained a highly debatable, in fact, controversial, issue. Gas is comparatively a more environment friendly fuel. Technologies using gas have also comparatively shorter gestation during construction and easier to handle during operations. Therefore, power sector, fertiliser industry, LPG and petrochemical plants and other industries have all been making their own claims, and have been advancing arguments to support their claims, to get higher and higher allocations of gas. Another reason for this type of a demand has also been the severe mismatch between demands and availability. In the recent years, a new category of consumers in the Indian gas market has also emerged and that is from the piped city gas distribution including the CNG for transport sector.

For more than ten years the availability of gas in India, from the domestic production, has remained more or less stagnant. During the decade of 90's it was being suggested that gas would be the fuel of 21st Century. It was also projected that in addition to the domestic production of gas, huge quantities would be imported as Liquefied Natural Gas (LNG) which will be regasified and transported through the gas pipeline network. For this, in fact, a number of LNG terminals were plant to be set up both on Eastern and Western coasts. This enthusiasm was, however, dampened on account of erratic behaviour of the petroleum market both in terms of predictability of supply, but more importantly in terms of prices. As a result, India could set up much smaller capacities of LNG regasification plants. With the discoveries of large quantities of gas in the Bay of Bengal, first by Reliance Industries and then by Gujarat Gas, the gas supply position, after almost ten years is likely to improve. The first instalment of KG Gas System, of the order of 40 million cubic meter per day, is now available. This has been responsible for atleast mitigating the problems of existing fertiliser and power plants and also for other industries including, to some extent, for the city gas distribution.

The demand projections upto the year 2011-12 is estimated to be of the order of 280 million cubic meter per day.



















City gas












Petrochemicals/ Refineries/Internal Consumption






Sponge iron/Steel












Source: Report of the Working Group on Petroleum & Natural Gas Sector for the XI Plan

As compared to the demand there are two estimates of the availability by 2012. An optimistic estimate puts it at 285 MCMD, a conservative estimate at 191 MCMD. A number of experts believe that in all probability it is the conservative estimate of about 190 MCMD which will be available and not 285 MCMD. It would, therefore, be desirable that new facilities are planned keeping this in view. When the KG Gas Basin production was to start the issue of gas allocation emerged as a matter of debate, consideration and decision. The Government set up an Empowered Group of Ministers. According to their decision, the following priorities were arrived at - (i) fertiliser plants, (ii) LPG and petrochemical plants, (iii) existing power plants, (iv) city gas distribution, (v) if there is a balance left over, to meet the additional requirements of existing power plants, (vi) new gas based power plants. These allocations met with comments and criticism from various quarters.

To discuss the issue of gas allocation, Infraline Energy and IDFC organised a Round Table on 5th June, 2009 which I co-ordinated. We had three Presentations from the Fertiliser Sector, two from the Power Sector including one from NTPC and one from the Price Waterhouse and Coopers. One of the presentations in the Fertiliser Group focused particularly on Chemical Industry perspective. I outline below the main points of Presentations and also the discussions that followed:

  • As in March, 2009 the total availability of gas is of the order of 103 MCMD which includes 57 MCMD of gas from ONGC and OIL, which is on Administered Price Mechanism (APM), 20 MCMD from the private and joint venture category and 26 MCMD of regasified LNG. The distribution among consumers consists of power - 40%, fertiliser - 30%, LPG - 7%, petrochemical and refinery - 5%, city gas including CNG - 5%, steel - 3% and others 10%.

  • Globally the power generation from gas based power plants constitutes about 19% of the total generation; other sources include coal - 49.7%, nuclear - 19.3%, hydro - 6.5%, renewable - 2.3% and others 3.5%. The power generation capacity profile in India consists of coal - 52%, hydro - 25%, gas - 10%, nuclear - 3%, renewable - 9%, diesel - 1%. Based on this, the Power Group made a strong plea that gas based power generation should be stepped up. If by the year 2032, the total installed capacity rises to 800 GW, even to maintain the present proportion of 10%, the gas based power generation capacity should rise from about 15,000 MW to 80,000 MW. If the proportion of 10% has to increase the capacity on gas will have to be even higher.

  • For about 15,000 MW capacity of gas based power plants, the gas requirement is of the order of 77 MCMD, which will enable these plants to run at 90% PLF. However, the availability is only 38 MCMD, just 50% of requirement. For a power starved country, to keep almost 6,000 MW capacity idle is indeed a serious matter.

  • One of the arguments made, which have been often made in the past, was that while fertiliser could be produced by setting up fertiliser plants outside India based on gas available in such countries, it may not be practical to do so for generation of power. The counter argument from the fertiliser side, which has also been often made, has been that it is not so easy to set up these factories in foreign countries, that inspite of best efforts in last many years only one such factory has been possible and that price of gas in these places may also not be as inexpensive as being projected.

  • Fertiliser side also advocates that food security is a more important and serious issue than availability of power, though they do consider power to be an important requirement. Because of the regulated price of fertiliser at which it has to be supplied to the agriculture sector, the Government has to bear an excessively high subsidy burden. Additionally import of fertiliser also places extraordinarily high financial burden on the Government.

  • The Presentation on behalf of chemical industry brought out many interesting details. There are a number of chemical plants which produce materials needed for power projects and other applications which would either promote more efficient generation of power or will promote energy efficiency by way of reduced consumption of power. Such applications are also relevant in defence Industry, for food security, in coal mining (for explosives), in cable jointing kits, in transformer for epoxy insulation, in high tension cables etc. Therefore, giving some priority to the chemical industry also serves the purpose of power industry as also many other sectors.

  • The Presentation from Price Waterhouse highlighted that it was the Government which was more concerned about higher allocation for fertiliser because of the subsidy burden that they have to bear, and the main reason is that the maximum retail price of urea is fixed. This policy should change. They also supported larger allocations for city gas distribution including for CNG in the interest of environment. As per PWC, an allocation of 10 MCMD will be enough to provide piped gas supply, including CNG, to ten large cities.

  • A presentation on behalf of WARTSILA emphasised on the need for Distributed Generation. Their articulation highlighted that, considering the shortage situation in the country, which is likely to continue, and also the fact that large projects take much longer to come up, 100 MW sets at 20 locations could prove more effective than one 2,000 MW plant. If Decentralised Generation Systems are integrated with "power" and "chilling", smaller gas based power plants could give a net Thermal Efficiency of 70%. In conventional large combined cycle power plants, if we also consider T&D loss of 20-30%, the net Thermal Efficiency at End Consumer will work out to only 38-43%. In case of a typical large coal based power plant, the Thermal Efficiency at power generation level is 38% but at Consumer End it is only 26-30% if we account for T&D losses. Besides, reliability of Decentralised Generation for local Distribution would be much higher.

  • While this concept, on the ground of efficiency of fuel consumption holds considerable profit its application would be limited to locations having access of gas supply network. Gas Highways and further networks will have their own economies to be kept in view. In any case the whole issue of Decentralised Generation, considering the high incidence of T&D losses, does merit consideration.

  • Can there be marketing freedom to gas producers? Obviously perspectives of producers and consumers differ on this issue. Producers advocate that they would be able to recover their costs and would earn returns attractive enough to make further discoveries and investments. This, in turn, will lead to much larger availability of gas. Users have different views. In a situation of extreme shortage, this cannot be left to producers who will take undue advantage and undeserved profiteering. Independent Regulation, which should also take into account the need for incentivising investments and protecting interests of consumers, may be the right approach.

  • During discussions, a point regarding the gas based plants being used as the peak hour support rather than taking care of based load came up. No doubt, this practice is followed in a number of countries. In India the shortage situation is so extreme that our installed capacity is not even meeting the based load requirement most of the time. In such a situation there is no alternative than to run these gas based plants as base load stations. The limited hydroelectric capacity is being used to support peak hour needs, to the extent these plants are able to do so.

  • With reference to a query, it was clarified that the Working Group on Power for Eleventh Plan had taken due note of the fact the gas availability and price both were unpredictable and, therefore, it was recommended that in the middle of the plan period when the picture could be clearer, efforts should be made to rework the additional capacity based on gas. Now that we are in the middle of the Eleventh Plan, a crash programme of gas based plants could be prepared right now based on the likely availability of gas in 2012.

Based on presentations and discussions, conclusions that could be drawn are outlined below:

  1. Existing power plants and those getting completed must be given the required allocations.

  2. Fertiliser sector claim on the ground of food security has the validity. Our efforts to set up fertiliser plants abroad near gas sources must continue.

  3. Power and Fertiliser together would obviously have 70-75% of total gas, the balance going to Chemicals, City Gas and others.

  4. Decentralised generation integrating power and cooling/chilling may render an efficiency of the order of 70% as claimed. Keeping in view the gas grid, smaller plants with this concept appear to be a short and medium term solution to the immediate power problems, consider a gestation period of 12 to 16 months. This approach will need to be examined.

  5. By 2012, it is better to assume gas availability in the range of 190 MCMD rather than 285 MCMD being projected, and plan for consumption accordingly.

  6. Gas marketing including allocations cannot be left, at this stage, to producers. There is a need for National Gas Allocation Policy, which should be evolved through an extensive consultation process.

  7. Gas is a national resource. Its utilisation should be on the basis of value addition it does in the overall economic growth as well as certain aspects equity. Relative contributions of various gas consuming sectors (fertiliser, power, chemical, city gas etc.) in the overall economic growth will have to be kept in view while deciding the gas allocation principles and procedures.

  8. NELP contract provides for Government (or Regulator) for price formulation. Gas Allocation Policy should provide for pricing approach including the principle that Independent Regulator would take care of the pricing issue. Perhaps the brief of the Petroleum and Natural Gas Regulatory Board could be enlarged to cover upstream gas.

  9. Pricing cannot be kept uncertain. No investor can make huge capital investments in industries like power if availability of gas for next 25 years and more and also the approach to long term pricing are not spelt out. As it is, gas sector has given enough reasons, in the past, to be worried. Can we make it a little more certain, if not absolute clarity?