Request you to kindly drop in all your mails/queries to support@infraline.com or call us at
+91-120-6799125 (D); +91-120-6799100 (B)

POV : Do we have enough domestic gas available for city gas distribution (CGD) to continue to be a success story by having access to cheap gas?

By , ,
Industry : ONG

CGD was rolled out in the country almost a decade back. In cities like Mumbai and Delhi, the implementation came by way of a Supreme Court judgement. With an aim to encourage CGD, a prominent player like IGL was allocated APM gas, which further contributed to its profit margin. However, with depleting production of gas from major oil fields such as KG-D6 and Panna-Mukti-Tapi (PMT) and no new oil discovery in near future, the availability of cheap domestic gas to CGD is increasingly becoming a difficult proposition.

However, within the industry, there appears to be an ambiguity regarding availability of domestic gas for CGD. There are some hopeful voices in the industry, who firmly believe that with NELP, shale gas and coal bed methane gas (CBM), there is no cause for worry for CGD players.

Besides gas availability, there are various other issues which are impacting the CGD industry. In this context, InfralineEnergy's Sangeeta Tanwar finds out what different stakeholders have to say on the issue.

Mr Apurva Chandra,IAS, Joint Secretary,Ministry of Petroleum and Natural Gas (MoPNG)

The real issue with the development of CGD since the past decade is the availability of gas. The CGD in the country was rolled out with allocation of cheaper APM gas. Our big CGD success stories be it IGL or MGL, right from day one, had the advantage of falling back on assured supply of domestic gas at the then APM prices. With falling production from KG-D6 gas and no new oil and gas discovery in sight, it is time that CGD players should seriously start calculating the viability of CGD at LNG as an option.

As far as the allocation of gas from existing sources is concerned, the priority for the ministry will continue to be power and fertiliser sector. If we say, that CGD gets gas at US$4.2/mmbtu - it is equivalent to crude price of US$26 per barrel. In such a scenario, the domestic gas allocated on priority basis to fertiliser and power sector, where the final product is controlled - it is highly unlikely that domestic gas will ever come to CGD sector. With Petroleum and Natural Gas Regulatory Body's (PNGRB) plan to roll out CGD in another 320 odd cities and ever decreasing availability of domestic gas, one has to seriously examine the option of making CGD viable with LNG.

While one must have an optimist outlook and hopeful that more oil and gas discoveries would be made, we must remember that with ageing of oil fields and declining production from KG-D6 as well as ONGC fields, we do not have much of gas available to us. Also, new oil and gas discoveries, if any, would come to production only in seven to eight years. We talk about NELP, but again that appears to be an uncertain and long-term prospect and CGD business cannot rely entirely on it for its rapid expansion.

Mr Rajeev Mathur,Executive Director - Marketing,GAIL India Ltd

As far as availability of indigenous gas for CGD business is concerned, I do not see any shortage or disruption in supply. With 200 billion cubic metres of gas being available domestically, there would be enough of gas for the next couple of years in the country. With 260 NELP blocks under various stages development and with conservative estimates of even 10 percent of these blocks yielding oil and gas, there is no reason for us to worry about the immediate availability of gas for expansion of CGD projects. Also, we should look forward to discovery of shale gas and coal bed methane (CBM).

So far, not even half of India has been geologically explored. With national oil companies actively scouting for oil and gas reserves, we should be hopeful of making new discoveries in near future. Therefore, there is no cause to worry as far as availability of domestic gas is concerned for further development of CGD.

Well, a bulk of the demand in gas based industry is undoubtedly price sensitive, but as far as CGD is concerned, the small sector exhibits inelasticity towards price. And if need be, CGD, I believe has the ability to pay higher prices for gas.

In fact, our exploration policy should have a proactive role to play in ensuring that we continue to fast track our existing exploration and development efforts coupled with aggressively pursuing new sources of gas. This coupled with a strong regulator - PNGRB would encourage conducive growth of CGD.

Mr M Ravindran,CEO,GAIL Gas Ltd

The availability of gas, input gas price and its terms and conditions are critical factors for viability of the CGD projects, since CGD is cost intensive with high gestation period for the projects.

So far, with allocation of APM gas to CGD, the players in the business had it easy. However, with continuous decline in production from a major field such as KG-D6, there is a serious question mark on the availability of cheap domestic gas to CGD sector. The non-availability of domestic gas should serve as a wake-up call for the regulatory board and new entities that are looking forward to jump into the CGD business hoping to get cheaper gas. We do have an option of going for LNG, but the moment you talk about LNG, the dynamics of business changes. The biggest challenge is finding buyers to buy this gas. Our own experience, while laying a pipeline in the eastern and southern part of the country has not been pleasant with difficulties in selling LNG.

However, the deficit of gas shall be compensated by RLNG imports. The R-LNG can bridge the demand-supply gap . The only issue is the price of imported LNG that is expensive than domestic gas and is particularly cost sensitive to fertiliser, power, PNG and CNG sectors. Chairman PNGRB has also taken-up the issue of gas availability for CGD with Hon'ble Minister of Petroleum and Natural Gas. And, the government's intervention should be able to improve the situation.

With depleting production of APM and KG-D6 gas, it is time that an equitable policy for selling LNG for CGD at relative price is rolled out.

(InfralineEnergy"s "Points of View" (POV) is an initiative for encouraging dialogue between various stakeholders of the Indian energy sector on contemporary subjects. For feedback, please write to feedback@infraline.com)