GAS GRID

Many industries shutting down


The other pipeline, Reliance Gas Transportation India transports gas from Kakinada on the Andhra coastthe landfall point for gas from the Krishna Godavari Basinto Bharuch in Gujarat. It is about 1,386 km, connecting south India to the west.
GAIL has extended the pipeline connecting an LNG (liquefied natural gas) terminal at Dahej in Gujarat to Uran in Maharashtra. RIL plans to connect its KG Basin finds with Chennai and Bangalore.
But there is still a gaping hole in the east, with no existing or a future pipeline pointing to that direction. Even northern states like Punjab, Rajasthan and Bihar, which have a desperate need for energy , have no new piplines being set up in them. According to reports, the government may announce plans to build a 6,000 km pipeline, at a cost of over Rs 30,000 crore soon, by laying a gas cess.
The most logical sources of gas for the east are in Indias eastern neighborhood, Myanmar and Bangladesh. However, less-than friendly political relations come in the way of tapping these gas sources and building pipeline networks to carry gas from these sources.
Says AOGO (Association of Gas Operators) secretary general Ashu Sagar: If the Myanmar to Delhi via Kolkata pipeline had fructified, we would have had a east-north corridor, criss-crossing the existing HBJ backbone. It would have supplied gas to far-flung areas in the east. Currently, Myanmar is building a pipeline to China. But talks with India have not borne fruit. The Myanmar pipeline may be further extended to Malaysia and Indonesia, thus benefiting China all the more.
With Indias two largest pipelines currently pointing to Gujarat, many chemicals, textiles and cement makers in the state have already switched to LNG for power generation. As an India-wide pipeline system gets built, GDP growth may get better, due to a manufacturing boost in many states.
Of the 25,000 MW captive power generation, only 13% takes place through natural gas at present. Industries like IT and BPO, which generate captive power through fuel oil, will switch to the cheaper alternative, thus boosting Indias IT offshore advantage.
Indeed, the demand for gas in the country is huge. The demand for gas is expected to shoot up to 280 mmscmd whereas the supply will only be about 202 mmscmd by 2011-12 . In 2008-09 , the supply was about 120 mmscmd against a demand of over 197 mmscmd, according to KPMG.
While the petroleum and natural gas ministry is awarding bids for city gas distribution (CGD) networks in smaller cities like Meerut, Sonepat, Kota, Dewas, industries still continue to rely on costlier fuels like naptha and fuel oil for captive power generation. A CGD in major cities will solve the problem to a big extent alongside reducing Indias oil bill, as citizens shift to using CNG, rather than petrol for automobiles. A shift to natural gas will also drastically reduce air pollution.
Says KPMG India ED Jai Mavani: The main driver for the development of gas transmission and CGD shall be the availability of requisite volumes of gas. What now matters is whether the CGD licence-holders can obtain gas supplies and develop gas distribution infrastructure.
Besides, there are numerous internal challenges as well. Companies are wary of adding capacities to existing or proposed pipelines without tax sops from the government as it is a financial burden due to lack of gas supplies. Then there is a lack of planning in the industry on how to consolidate gas from numerous smaller CBMs (coal bed methane) resources like in Bokaro. Unlike in India, CBM has become a major source of energy for US, Australia and Canada.
Rapid technology advancement is also needed in the area to improve pipeline utilisation and efficiency.
India also has one of the lowest densities of gas being carried in per km of pipeline at 116 km/mmscmd compared to US (1086 km / mmscmd ) and France (1,405 km / mmscmd).
Currently, plans are underway to build CGDs in 33 cities with an investment of over Rs 10,000 crore. Only three locations in IndiaMumbai , Delhi and Gujarathave a well-developed CGD.
For utilisation of newly-found gas reserves, the government has prioritised gas based fertiliser (urea) plants, LPG extraction plants, existing gas based (standard) power plants and city gas grids for allocation , in that order.
Last year, the government incurred a record fertiliser subsidy of about Rs 1 lakh crore, which might be eased if the fertiliser plants get the required gas. Currently, naphtha prices are about $17 per mmbtu compared to RIL gas, which fertiliser plants are being delivered at about $6.5 per mmbtu. Many plants are not getting adequate gas due to pipeline limitations. Namrup in Assam, for instance, has not been allocated gas because of an absence of pipeline in the east, says a Fertliser Association of India official.
Many coal-based fertiliser plants of FCI and HFC in the east have shut primarily because the companies dont see a gas grid coming close to them in near future, adds Shubhranshu Patnaik, associate director at PwC. On the other hand, refineries need about 24 mmscmd of gas, but the supply to them is only about 2 mmscmd.
Analysts say it is a chicken-and-egg situation, where supplies have to precede the pipelines. Gas infrastructure typically grows and expands as there is increasing availability of gas in fields. With now more gas being available in India, I see a reasonably good pipeline structure 5 years down the line, says Ajay Arora, partner & national leader, oil & gas sector, at Ernst & Young.
Some, however, feel that a scene where gas will be available in every home in India is nowhere to be seen.
Five years hence, I see gas being available in towns closer to industrial hubs. But a US or Europe like distribution network in India is still a far-fetched dream, adds Mr Sagar of AOGO.
There was another pipeline proposal to transport gas from Bangladesh to India. The Tatas were in talks to build this pipeline. But the group later withdrew owing to the anti-India stance of Bangladeshi politicians.
Similarly, the Iran-Pakistan-India (IPI) pipeline, commonly called the peace pipeline, has also not taken off. But Pakistan is already in the process to raise loans for a pipeline from Iran to itself. Iran was seen recently talking to China for another pipeline.
While India has no transnational pipeline supplying gas to it, other countries have been able to overcome the stumbling blocks. Europe, for instance, has a large gas circulatory system, courtesy the oil and gas pipelines emanating from Russia, and supplying to Germany, Austria, Poland and Romania. The UK has a fully developed gas market with a gas regulator Ofgem, Xoservethe distribution network, and an independent watchdog EnergyWatch.
India is still to develop a gas trading exchange. Currently, most natural gas is traded through forward contracts, as a gas futures market doesnt exist in India. Gas pricing is also decided by the government, thus indicating a very nascent market.
But this years budget carries ambitious plans. With the recent find of natural gas in the KG Basin, the indigenous production of natural gas is set to double. The government has proposed to develop a blueprint for long-distance gas highways leading to a National Gas Grid, in this years budget. On the other hand, many companies like Indrapratha Gas, Gujarat Adani Energy, Gujarat Gas Company, GAIL, RIL, Mahanagar Gas, Avantika Gas and Tripura Gas have shown interest in building the city gas grids across the country. While the government plans to provide gas to 84 cities in India by 2011 and 250 cities by 2018, it remains to be seen whether it will be able to fulfill its promise considering the non-existent major gas aortas in the country.