Srivastava in a free-wheeling chat with InfralineEnergy's Sangeeta Tanwar comments on challenges being faced by gas sector in India and the uncertainty of oil and gas business.
He emphasises on enhancing existing pipeline infrastructure in order to boost natural gas business. He underlines the importance of coming up with reasonable tariff structure and making quick progress on gas price pooling to attract further investment in the industry.
Edited Excerpts
What is your outlook on natural gas demand in the next five years in the country? What is the supply scenario against the estimated demand?
The expected domestic availability of gas for 2011-12 is pegged at 150.47 MMSCMD as against the current indigenous production of 140 MMSCMD of gas. By 2015-16 the total gas available in the country is estimated to go upto 201.72 MMSCMD.
"With imported gas there are issues related to viability of projects owing to high prices of gas for customers. It is keeping these factors in mind that one has to think about building wider and deeper network of pipelines."
We are confident about assured supply of indigenous gas for the next five years. But with rapidly increasing demand for gas, the gap between demand and supply of gas is set to increase. It is tough to make predictions about availability of gas in the long run given the uncertain nature of oil and gas business. However, we are hopeful that we will come across more KG-D6 like discoveries that would further add to our existing available sources of gas.
With the declining production of RIL's KG-D6 gas, what is MoPNG's response and plan of action against RIL?
I believe DGH (Directorate General of Hydrocarbons) is interacting with RIL (Reliance Industries Limited) and Niko Resources. They are trying to address the issue of falling gas production. DGH is essentially an arm of MoPNG. It is regularly interacting with the contractor. The Ministry is also closely monitoring the developments related to KG-D6.
How do you plan to step-up the pipeline infrastructure and gas availability?
The biggest constraint so far in developing an extensive pipeline network has been the availability of gas. There was a step-up in the availability of gas with success of NELP (New Exploration Licensing Policy) in recent times with a major discovery in the form of KG-D6. We are hopeful that in future we will make some more discoveries of indigenous gas sources on the lines of KG-D6. With more NELP rounds and nearly 250 PSCs (production sharing contracts) we can look forward to having more gas. At the same time, the oil and gas business turns out to be the most uncertain business. It is difficult to make projections for availability of gas beyond five years.
Given the uncertainty surrounding the availability of gas, it becomes necessary to consider the use of imported gas. The moment one talks about imported gas it becomes important to consider the cost of this gas. Now, while laying down pipeline network one has to consider things such as who all would be interested in working with imported gas given that the imported gas is going to be relatively higher priced as compared to imported gas. With imported gas there are issues related to viability of projects owing to high prices of gas for customers. It is keeping these factors in mind that one has to think about building wider and deeper network of pipelines.
With rising oil prices, even imported gas will turn out to be cheaper for interested customers - so this consideration too will help aid growth of our pipeline infrastructure.
There is also a great mismatch between availability of gas and the existing pipeline infrastructure across the country. How do you plan to address such disparities?
The existing pipeline network in the country is 10,800 km. With an eye on further expanding our pipeline infrastructure we are looking at developing new pipeline network running into 6,335 km. Also, upgradation of existing pipelines will add another 1,115 km to our existing pipeline infrastructure.
"As of now proportion of scale in tariff system is very high. Perhaps the tariff system could be similar to existing railway tariff structure. In case of railway tariffs we do not see high disparities in tariff structure for short and long distances respectively."
The Ministry has given authorisation to large number of pipelines. Once these pipelines are put in place, large parts of the country which are currently not connected to any kind of pipeline network will have easy access to gas. New pipeline infrastructure will soon be coming up in large number of places such as Punjab, Uttar Pradesh, Bihar, Jharkhand, Tamil Nadu, West Bengal, Karnataka, Kerala and Orissa.
Moreover, with an aim to expand and strengthen the gas pipeline infrastructure the Regulatory Board PNGRB (Petroleum and Natural Gas Regulatory Board) is also engaged in authorising new pipelines. The idea is to develop a widespread grid for facilitating assured gas supply to various parts of the country.
What are your views and suggestions for rationalising gas pipeline transportation tariff?
The tariff related issue comes under PNGRB's purview. Lots of views have been expressed regarding the kind of tariff system that India should opt for.
The tariff system that we decide to go for has to be reasonable. Players like GAIL have proposed flat rates. Another option that we could look at it is having telescopic tariff. But there should be some link between the shorter distance tariff and the long distance tariff.
"CGD has far more greater impact on public in comparison to the gas that is allocated to the sector."
For example if the tariff for the first zone is `X' then the tariff for the last zone should not be more than `3X'. As of now proportion of scale in tariff system is very high. Perhaps the tariff system could be similar to existing railway tariff structure. In case of railway tariffs we do not see high disparities in tariff structure for short and long distances respectively. In case of Railways the fares for the next 200 km is never the double of what a passenger is being charged for the first 100 km. The railway tariff sort of plateaus - it does not increase in linear fashion and the increase in tariff with increasing distance is not very steep.
What are the advantages that the proposed gas price pooling offers?
Gas price pooling will make things easier for a new customer who would have to otherwise bank entirely on LNG. So, setting up new projects or getting into the business becomes bit unviable for new players who have access to gas at higher prices. On the other hand old consumers have an advantage as they continue to use cheaper indigenous gas. High priced LNG is as of now discouraging new investments. Gas price pooling could result in lower gas prices and therefore help new projects.
The APM pricing was dismantled in 2002, however, power and fertiliser sector continue to get natural gas at APM price. What are the reasons for creating such disparities amongst consumers?
APM gas is priced at US$4.2. Also, APM gas price and KG-D6 gas price is the same.
If you look at the indigenous gas scenario in the country most of the gas available is priced at US$ 4.2. Around 60 MMSCMD is the KG-D6 gas, which costs US$ 4.2. APM constitutes another 50 MMSCMD. It also costs US$ 4.2. All together we have 110 MMSCMD gas which is priced at US$4.2.
This leaves us with PMT gas (Panna-Mukti and Tapti fields) to the tune of 15 MMSCMD or so along with minor production from Raava oilfields and ONGC's non-APM gas. This accounts for another 25 percent of gas. So, large proportion of gas is available at US$4.2. And the existing price differential is applicable for very small amount of gas.
As per EGoM (The Empowered Group of Ministers') the allocated natural gas to CGD stands at 5 MMSCMD. Given the growth prospects and outlook of CGD (city gas distribution) - is the gas allotted to sector sufficient. In near future, do we see substantial increase in gas allocation to CGD?
At the time of allocation of gas from KG-D6, as part of CGD the gas was earmarked for domestic and transport sector. Both these sectors were given high priority by the EGoM while allocating gas to various sectors. While allocating gas from KG-D6 the highest priority was given to fertilser sector, followed by LPG (liquefied petroleum gas), power and CGD.
"The surplus gas can be diverted to neighbouring areas by IGL only till the time the consumption level of gas in these areas increases to match-up the gas allocated to each of these individual areas."
I believe CGD was given a high priority by EGoM while allocating gas to various sectors. Though the critical factor to be considered here is that at the time of allocation of KG-D6 gas, CGD's capacity to offtake gas was limited. Keeping this in mind only 1.5 MMSCMD gas was allocated to CGD. The allotted gas proves to be a large quantity for CGD. For example IGL (Indraprastha Gas Limited) despite being a big player with huge operations uses about 2 MMSCMD gas. This amount of gas turns out to be sufficient for the company's entire PNG and CNG operations in Delhi.
CGD has far more greater impact on public in comparison to the gas that is allocated to the sector. Now, if you look at the power sector then 2 MMSCMD gas will be sufficient only for running a 450 MW plant which is not a big power plant by any means.
IGL has asked the Government to merge together its state gas allocation for different areas of operations as an overall allocation of 2.7 MMSCMD for Delhi, Noida, Greater Noida, Ghaziabad, Faridabad and Gurgaon. What is the Ministry's stand on the issue?
We have submitted a proposal to this regards to the Ministry which is examining the issue and it will be soon taking a decision on the matter.
IGL's argument in the case is that one cannot distinguish a customer at a CNG station as he or she can be from Delhi, Faridabad, Gurgaon or Noida. With floating population and seamless borders one cannot make a distinction amongst customers coming from different areas. At the same time demand for CNG in Delhi is going up steadily. As against the present practice of separate quantity of gas allocated for each of these areas IGL is asking for overall allocation of gas for all its operations.
"Since, TAPI is a big project there are couple of challenges that need to be addressed. There are security issues, an agreement has to be reached regarding gas pricing."
The Ministry's stand is that out of the total gas allocated to IGL the quantity earmarked for Faridabad, Gurgaon and Noida is ultimately meant for the consumption of that particular area alone. The surplus gas can be diverted to neighbouring areas by IGL only till the time the consumption level of gas in these areas increases to match-up the gas allocated to each of these individual areas.
If currently Faridabad is consuming gas to the tune of 0.05 MMSCMD instead of 0.25 MMSCMD allocated to them then the 0.2 MMSCMD gas can be used in Delhi. However with the consumption of gas in Faridabad increasing the proportion of gas received by Delhi from Faridabad's share would correspondingly decrease.
What are your expectations from proposed TAPI (Turkmenistan, Afghanistan, Iran, Pakistan and India) project post IPI (Iran Pakistan India) project failure?
TAPI is an important project as it involves various countries. We are having strings of technical Working Group meetings over the last seven months discussing the project.
We are working on lot of things. Since it's a big project there are couple of challenges that need to be addressed. There are security issues, an agreement has to be reached regarding gas pricing. The proposed pipeline project is running through many countries thus it is but obvious that there will be some issues surrounding the project. Everyone involved in the project is cooperating and we are hopeful that soon there will be some positive development on the project.
Do you feel that IOC's plan to revive Ennore LNG terminal at East coast would be economically viable in view of its KG D6 neighbour?
Any new upcoming capacity will definitely help LNG business. Also, there is lot of demand for gas beyond KG-D6.
(InfralineEnergy thanks Manu Srivastava, Director-Natural Gas, MoPNG for sharing his valuable insights with our readers. The column `In Conversation', is a platform to engage experts from various sectors to share their views on the different transformations in the Indian energy sector.)