challenges and opportunities in the indian natural gas market

Subbu BettadapuraResearch Manager, Energy Practice, Frost & Sullivan

Challenges and Opportunities in the Indian Natural Gas Market

November 16th, 2007

© 2007 Frost & Sullivan. All rights reserved. This document contains highly confidential information and is the sole property of Frost & Sullivan. No part of it may be circulated, quoted, copied or otherwise reproduced without the written approval of Frost & Sullivan.

2

Natural Gas Supply and Demand Trends in India

Gas Sector Policies and their Impact on the Industry

Role of Gas in India’s Power Generation Mix

Strategies for Overcoming Gas Shortage

Update on Gas Discoveries and Infrastructure Projects

Table of Contents

3

• Increasing energy demand – India currently ranked sixth in the world in terms of energy demand

• Economy projected to grow at around 7% to 8% over the next two decades

• Indian economy is highly vulnerable to supply disruptions

• Increasing dependence on imported oil - the International Energy Agency (IEA), projects that India's dependence on oil imports will grow to 91.6% by the year 2020.

• Shift to natural gas – India to become a large importer of LNG and natural gas

• Increased focus on domestic exploration and production

India - Rapidly Increasing Energy Demand Makes Attaining Energy Security A Challenge

Introduction

4

Energy Consumption and Energy Mix – World, Asia Pacific and India (2006)

World Asia Pacific India

Energy Consumption (MTOE) 10878.5 3641.5 423.2

Energy Mix (%)

Coal 28.4% 49.2% 56.2%

Oil 35.8% 31.5% 28.4%

Natural gas 23.7% 10.8% 8.5%

Nuclear 5.8% 3.5% 0.9%

Hydro 6.3% 4.9% 6.0%

Source: BP Statistical Review, 2007

Introduction

5

Regional Snap Shot: Proved Gas Reserves (in Trillion Cubic Meters) in the Asia Pacific Region at the end of 2006

Introduction

TOTAL: 14.82 TCM Source: BP

Malaysia: 2.63

Indonesia: 2.76

China: 2.35

Bangladesh: 0.44

Australia: 2.52

India: 1.08Myanmar: 0.5

Brunei: 0.34

PNG: 0.44

Pakistan: 0.96

Thailand: 0.35

Vietnam: 0.40

1TCM=35.3TCF

6

Proved Gas Reserves, India (2001 – 2006)

Source: BP Statistical Review, 2007

0.76 0.750.85

0.92

1.10 1.08

0.00

0.20

0.40

0.60

0.80

1.00

1.20

2001 2002 2003 2004 2005 2006

Year

Pro

ved

Res

erv

es (

in T

CM

)

Supply and Demand Trends

7

Gas Production and Consumption Growth, India (2001 – 2006)

Source: Data from BP Statistical Review, 2007

0.05.0

10.015.020.025.030.035.040.045.0

2001 2002 2003 2004 2005 2006

Year

BC

M Production

Consumption

• Widening gap between consumption and production. Production in the country not increasing in tune with consumption


8

Gas Supply – Current Situation

Domestic Supplies 32.3

LNG Imports 6.5

Total 38.8

BCM

• Reserves/Production Ratio = 33.5 years• Domestic reserves are scattered

Gas Producing Fields

LNG Import Terminals

Source: Directorate General of Hydrocarbons (DGH), India


9

Gas Consumption by End User Segments

Source: GAIL


2000 (22 BCM)

Fertilizer40%

Other Industries

10%

Steel6%

City Gas1%

Petrochem/ Refinery

5% Power38%

2006 (39 BCM)

Power40%

Petrochem/ Refinery

9%Other

Industries15%

City Gas4%

Steel3%

Fertilizer29%

10

Gas Demand Projections – By various agencies

Key Assumptions (for the high case scenario)

8% GDP growth rate

20% of power would be generated using gas

Fertilizer capacity would be all gas based

Other End Users grow at 7%

Source: Planning Commission of India, Integrated Energy Policy, 2006

0

200

400

600

800

1000

1200

EIA HighCase

EIA LowCase

IEA IHV 2025 IndiaVision2020

Power &EnergyDivision

IRADe

MM

SCM

D

2009-10

2014-15

2019-20

2024-25

2029-30

1111

430391

155225 258295

EIA – Energy Information Administration, USAIEA – International Energy AgencyIHV – India Hydrocarbon Vision 2025IRAde – Integrated Research and Action for Development

1 MMTPA ~ 4 MMscmd ~ 1.34 BCM


11

Sector Wise Gas Demand Projections

4.39.1

2.15.4

45.2

28.3

14.6

28.4

7.12.8

11.9

5.6

05

101520253035404550

BC

M 2007-2008

2011-2012

Source: Gas Authority of India Limited (GAIL)

Total Demand2007-2008 = 63.9 BCM2011-2012 = 100.9 BCM


12

Gas Supply Outlook

Gas Source 2007 - 2008

(in BCM)

2011 - 2012

(in BCM)

National Companies 25.0 24.0

Private/Joint Ventures 8.3 20.4

Projected Domestic Supply 33.3 44.4

With the KG-basin discoveries coming on-stream, total projected supply (optimistic estimates) could be around 70 BCM during 2011-2012

Source: DGH, India and GAIL


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Table of Contents

14

Gas Sector Policies

Petroleum and Natural Gas Regulatory Board Act, 2006

• Creation of an independent regulatory board for downstream activities• Setting of up LNG Terminals, Storage, Marketing of LNG/NG simplified. No licensing

required, only registration• Exclusivity period for city gas distribution; Open competitive bidding• Non-discriminatory open access for pipeline transmission; regulated tariff

Salient Features of the Act

• Policy thrust on Energy Security• Objectives are to Promote Investment and Foster Competition

• 100% FDI permitted in Pipelines/LNG/Marketing & Trading

• LNG imports and gas marketing under open general license

• Progressive decontrol of prices

• 0% import duty on LNG imports under consideration

Other important highlights of India’s gas sector policies

Policies

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Policies

• In the Upstream sector, the New Exploration & Licensing Policy (NELP) was started in 1999• The licenses for exploration are awarded through an international competitive bidding system• National oil companies are required to compete with Indian and foreign companies to secure petroleum

exploration licenses

Fiscal and Contractual Terms of NELP

• No payment of signature, discovery or production bonus

• No customs duty on imports required for petroleum operations

• No minimum expenditure commitment during the exploration period

• No mandatory state participation/carried interest by NOCs.

• Freedom to sell crude oil and natural gas in domestic market at market related prices

• No cess on crude oil production

• Royalty payment for crude oil on ad-valorem basis

- 12.5% for onland areas

- 10% for offshore areas

• Royalty on deep water areas (beyond 400m bathymetry)

- 5% for first seven years after commencement of commercial production

• Infrastructure status

- 7 years tax holiday from commencement of production

16

Gas Pricing – Evolving to Free Market Pricing

Pre-2004 Present Future

• 100% Government Controlled

• Single Price for all users and sources

• Cost plus basis

• 60% government controlled- for Power, fertilizer, small customers

• Multiple prices (US$2 – US$10 per MMBTU)

• NOCs- Administered• Private – Market related• RLNG – Market related

• Free Market Pricing

• Alignment with global trends

Source: GAIL

Policies

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Table of Contents

18

Power Generation Mix – INDIA, 2006

Source: Frost & Sullivan

Fuel Share of Installed Capacity, India, 2006

132 GW

Natural Gas11%

Nuclear3%

Other5%

Hydro26%

Oil1%

Coal54%

• Gas to increase its share in the power generation mix to 20% by 2030

• Private power generators have revealed a preference for gas-fired generation

• Gas accounts for over one-third of IPP capacity and is concentrated in the Western and Southern region

• Gas supply is a major source of concern for investment in gas based power projects

• Gas at a delivered price of about $3 mmbtu is considered the critical threshold for demand from the public power sector. At a price beyond $3.5/mmbtu gas is viewed as a too expensive fuel for public power production.

• Coal to remain dominant as the leading fuel for power generation

Gas to Power

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Power Sector Reforms

Salient features of the Electricity Act 2003

• Generation free from licensing• Captive Generation is free from controls. Open access to Captive generating plants

subject to availability of transmission facility • Open access to the transmission lines to be provided to distribution licensees,

generating companies

• Accelerated Power Development and Reform Program (APDRP) aimed at distribution sector reforms to make the power sector commercially viable

Gas to Power

20

Vertically Integrated

Mixed Structure

Unbundled

Not Privatized

Privatization Underway

SignificantPrivatization

Fully Private

China

India

Sing

MalayIndo

Japan

Korea

Key: Sing-Singapore; Indo-Indonesia; Malay-Malaysia; Phil-Philippines;

Viet-Vietnam; Thai-Thailand; Tai – Chinese Taipei

Phil

Thai

TaiViet

Power Sector Reform Status in Asia


Gas to Power

21

Fertilizers

• Recommendations to switch over to 100% gas based capacities

CNG/City Gas

• Environmental concerns driving the growth of the CNG industry

• Clean fuel made mandatory in major cities

• City Gas program a huge success in many cities in India

Reforms in other End User Industries

Gas to Power

• Reforms in the end user segments aimed at promoting efficiency in fuel/feedstock

• Gas emerging as the fuel of choice

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Table of Contents

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Overview of Domestic E&P Activities

Proven Commercial Productivity

Cambay Basin Krishna-Godavari

Basin

Mahanadi Basin

North Agartala Block

Barmer Basin

Identified Prospects

Prospective Basins

Source: DGH, India

Strategies

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Strategies for Overcoming Gas Shortage – Increasing Domestic E&P Activities

Blocks Awarded under Pre-NELP & NELP

• NELP VII Bidding Round to Likely to Commence in November/December 2007 • Nearly 25 blocks — each block with 5,000 sq km to 9,000 sq km — would be thrown open under

the NELP-VII bid

Round Year Onland Shallow

Offshore

Deep Water Total

Awarded

Currently

Under

Operation

Pre-NELP Prior to 1999 17 11 0 28 17

NELP-I 1999 1 16 7 24 20

NELP-II 2000 7 8 8 23 18

NELP-III 2002 8 6 9 23 23

NELP-IV 2003 10 0 10 20 20

NELP-V 2005 12 2 6 20 20

NELP-VI 2006 25 6 21 52 52

Source: DGH, India

Strategies

25

E&P Statistics (2005-2006)

Deployment of Rigs – Offshore: 37

Source: DGH, India

Exploratory Wells Drilled – Total: 198

Development Wells Drilled – Total: 220 Deployment of Rigs – Onshore: 93

OIL, 8

PVT/JV, 84ONGC, 106

OIL, 23

PVT/JV, 33

ONGC, 164

OIL, 0PVT/JV, 9

ONGC, 28

OIL, 14

PVT/JV, 9

ONGC, 70

Strategies

OIL: Oil India Limited, ONGC: Oil & Natural Gas Corporation Limited, PVT/JV: Private/Joint Venture

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Increasing LNG Imports

LNG Terminal 2007 - 2008

Capacity (in MMTPA)

2011 - 2012

Capacity (in MMTPA)

Dahej 5.00 10.00

Hazira 2.50 2.50

Dabhol 1.20 5.00

Kochi - 5.00

Mangalore - 2.50

Total LNG Supply (MMTPA) 8.70 25.00

1 MMTPA ~ 1.34 BCM

Source: GAIL

Strategies

27

Exploiting Coal Bed Methane Reserves

Coal Bed Methane Production Begins

• Great Eastern Energy Corp Ltd currently has about two dozen wells in West Bengal and plans to drill 300 more over the coming years

• India’s CBM reserves estimated at 16TCF

• 26 blocks awarded under 3 CBM rounds

• India’s Directorate General of Hydrocarbons has approved the drilling of more than 100 CBM wells that over the next four years will involve total investments of $150 million.

Source: DGH, India

Strategies

1TCM=35.3TCF

28

Exploiting other Gas Sources

Insitu coal/Lignite gasification

Gas Hydrates• Estimated potential placed at 1894

TCM of gas from gas hydrates

Surface coal gasification

• GAIL MoU with the Canadian company as technology partner for underground coal/lignite gasification projects

• ONGC MoU with Russian University

• Focus Areas – 5 States• Gujarat, Rajasthan, Tamil Nadu,

Andhra Pradesh and West Bengal

• ONGC MoU with Shell. • GAIL and ONGC plan to use Shell

Technology for surface coal gasification

• Likely locations for Pilot plants: Gujarat, West Bengal and Orissa

Strategies

29

Imports - Gas Sources for India

Strategies


IRAN: 28.3 TCM

MYANMAR: 0.54 TCM

AUSTRALIA: 2.61 TCM

QATAR: 25.36 TCM

TURKMENISTAN: 2.86 TCM

SAUDI ARABIA: 7.07 TCM

ABU DHABI: 5.96 TCM

1TCM=35.3TCF

Turkmenistan-Afghanistan-Pakistan Pipeline

Iran-Pakistan-India Pipeline

Myanmar-Bangladesh-India

Pipeline

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Table of Contents

31

Gas Discoveries in India

Discoveries

Krishna Godavari BasinONGC

Uppidi-1KG-DWN-A-1KG-DWN-E-1KG-DWN-U-1KG-DWN-W-1

RelianceDhirubhai 1 & 3

D6

RajasthanFocus Energy –

SGL1

Mahanadi BasinMDW-4A


North AgartalaKunjaban-2

32

Gas Grid

• Planned Pipelines: 8400 Km at an investment of US$ 5 billion

City Gas Projects

• City Gas projects to be extended to 22 other cities at an investment of US$ 2 billion

LNG Terminals

• 16.25 MMTPA of LNG terminal capacity to be added at an investment of US$ 2 billion

Infrastructure Development – Upcoming projects

Projects

HyderabadJamnagar

New Delhi

ChennaiEnnore

Kochi

Bangalore

Mangalore

Dabhol

Kolkata

Planned Pipelines

Bhopal

LNG Terminals to be functional 2009-2012


33

• Field Surveys

• Drilling equipment and services

• Well assessment

• Production Platforms supply

• Support and Maintenance services for Development projects

• Pipelines

• LNG import terminals and Re-gasification plants

• Offshore Supply Vessels (Diving Support Vessels, ROV Support Vessels, Pipe-laying vessels)

• Equipment supply (Turbo-machinery, etc)

• Gas to Power (Gas power plants)

Opportunities in Gas E&P and Infrastructure Development projects

Opportunities

Equipment Supply (Drilling, Turbo-machinery, etc) and

Services

Offshore Supply Vessels

Offshore Support and Maintenance Services

Best Opportunities

challenges and opportunities in the indian natural gas market

Business

gas consumption

natural gas india

natural gas supply

gas discoveries

gas reserves

gas marketing

scattered gas

bcm gas source