KG basin is the North-Sea of India. Humungous discoveries have been made by Reliance, GSPC and ONGC in the KG basin block. With the countdown for the first gas from Reliance field having started ( expected first gas in  second quarter of 2008 ,  initially the output is 40mmscmd which would be ramped upto 80mmscmd in another six months to a year )let us analyze the impact it will have on the Indian Economy and Corporate.

Indian Economy : These discoveries will provide the necessary fuel for the Indian Economy that is running along at a pace of 9% GDP growth. Basically it will transform a pre-dominant liquid fuel economy to gas fuel economy which will havefar-reaching impact on foreign exchange reserve, fiscal defecit and other macro parameters.

Fertilizer Companies would be able to substitute high cost naptha with a relatively cheaper gas thereby positively impacting their bottomlines and government subsidy.

Gas transmission & distribution companies like GAIL, GSPL, Indraprastha Gas, Mahanagar Gas,Gujarat Gas etc would be able to implement their expansion plans with the availability of increased gas. Development of city gas distribution (CGD) projects will improve the efficiency of energy usage and reduce the dependence on LPG, thereby again reducing the Government’s subsidy bill.

Power Companies like NTPC,Reliance Energy, GMR, Tata Power, Lanco etc would be able to improve the capacity utilization of their existing plants and  implement their expansion plans and with the availability of increased gas.

Medium Sized companies and SMEs would be able to convert their existing diesel based power plants to gas based power plant thereby reducing their power cost by atleast 30%.These would also increase the order-book of equipment companies like Cummins India and Wartsila for their gas-engines.

Pipe Companies have already started reaping the benefits and would do-so more in the future as also companies like Everest-Kanto Cylinders.

Interesting analysis.

By the way, Devesh I know that you know that these people are only news-readers.......nothing more.

RIL SCORES BIG GAS HIT IN CAUVERY . Some oil Traces have been found as well .

But  you were ahead of these guys at least in making that thought public

Govt may allow market price for RIL KG gas

Source : Business Standard

The government is likely to clear the price quoted by Reliance Industries Ltd (RIL) for its gas from the Krishna-Godavari basin without seeking to control the price. 

“Depressing gas prices artificially will lead to arbitration, which we cannot hope to win,” said a government official. He said a meeting in the law ministry a couple of days ago discussed the legal issues that might come up if the gas price was administered. 

“The case for depressing prices was found to be weak,” the official added. 

He said as the production-sharing contract allowed for a market-driven price, the government could not afford to set a benchmark for administering prices under the New Exploration and Licensing Policy (NELP) as the pricing formula for the RIL gas would apply to gas from the country’s other deep waters as well. 

“There are many such issues which we cannot overlook,” the official added. 

RIL, along with partners Oil and Natural Gas Corporation (ONGC) and British Gas, is selling gas from the Panna-Mukta and Tapti fields for around $4.75 per million British thermal unit (mBtu). It has “discovered” a well-head price of $4.33 per mBtu for its K-G basin gas.  

The gas pricing issue is not likely to go to the petroleum regulator, though officials in the petroleum ministry say if the regulator decides the price, there will be no accusations of favouritism. “However, gas pricing is outside the scope of the regulator in its present form,” a petroleum ministry official said. 

The fertiliser and power ministries, which together consume around 70 per cent of the gas, said they should get supplies at a subsidised rate of less than $3 per mBtu. These companies get gas at an administered price from ONGC and Oil India or use expensive naphtha or fuel oil. 

They said since there was no efficient gas market in the country, as demand far outstrips supply, RIL could not claim to have discovered a market-driven price for its gas. 

The government has been deliberating on the issue through a committee of secretaries led by the Cabinet secretary. “We are going to reach a decision very soon,” the government official said. 

The country’s deep water and ultra-deepwater regions are believed to hold enough gas to meet the country’s demand. The present demand is double the supply of around 85 million cubic metres per day (mcmd). 

The government has projected the 2011-12 demand at 283 mcmd, against the domestic production of 108 mcmd and LNG imports of 82 mcmd. 

'Power cos should get gas at upto $2.8 per mbtu'

Anil Dhirubai Ambani Group (ADAG) today demanded that gas to power projects be supplied in the price range of $1.5-2.8 per million British thermal unit (mBtu), while questioning the exorbitant returns the producers of such fuel get.

"While there is a defined return of 14% for power generation and 12% for fertiliser producers, why shouldn't there be no regulation on exploration and production of oil and gas?" J P Chalsani, director, Reliance Energy said.

Quoting various reports of analysts, he said, returns for gas producer (RIL) could be as high as 225% on capital expenditure and arbitrary fixation of prices by the producers of the fuel would hurt power and fertiliser producers.

ADAG seeks gas pricing & allocation policy

Questioning Mukesh Ambani-led Reliance Industries' (RIL) price formula for its gas from the Krishna Godavari basin, younger brother Anil Ambani's group, ADAG, today asked the government to come out with a pricing and allocation policy saying that arbitrary high prices will hurt power and fertiliser producers.

"When the users are subjected to regulation, how can the single gas supplier (RIL) is not regulated -- the production sharing contract between the gas producers and the government stipulates that pricing and utilisation policy should be in place, but there is none," J P Chalsani, director, Reliance Energy told PTI here.

Contrary to other regulated sectors, where capital expenditure and tariff are defined, how RIL's capital expenditure was approved in a non-transparent manner, Chalsani wondered and said that high capital cost would only lead to lower returns for the government and high prices for the end users.

Chelsani's comments coincide with the on-going exercise in the government for fixing the price of natural gas and formula by RIL, which seeks to sell gas at up to $4.58 per million British thermal unit (mBtu) at the landfall point at Kakinara in Andhra Pradesh.

After detailed discussions, the Committee of Secretaries has sent its recommendations to the Petroleum Ministry, amid reports of inter-ministerial differences on the issue, for further action and a decision is expected to be announced soon.

Link :  http://economictimes.indiatimes.com/The_making_of_the_gas_market/articleshow/2261145.cms - http://economictimes.indiatimes.com/The_making_of_the_gas_market/articleshow/2261145.cms

Hi Basant Ji and other TEDes,

This is an interesting thread, but not many posts for long time. I am a newcomer to this field, but looking in to the Indian situation and the other developed countries it seems that Gas distribution has lots of Market in India.

Reasons for the same:

1. Uninterrupted Gas supply.

2. No problem with applying for cylinder, delay and stuffs like that.

3. Safety is more, as equipped with Regulator, Alarm and stuffs like that.

4. In other developed countries it is treated as basic necessities in life, so once started in India, it can capture huge market.

5. I have tried to ask ladies in my home and other acquaintances, they said they will readily take if something like that is available.

Looking into the companies (though I don't have much idea:(() RNRL seems to be good, but still having problem with KG basin.

http://economictimes.indiatimes.com/News/News_By_Industry/Energy/Oil__Gas/Reliance_RNRL_fail_to_settle_KG_gas_dispute/articleshow/2774617.cms

If this problem is solved then it has huge potential. Moreover RNRL price is interesting now a days (Problem is Operating Margin is negative in Mar 07) Do anybody has any information on the outcome of this case?

Another thing, if this field is interesting then any other common stock which can be uncommon in long term?

Thank in advance for your guidance.

Regards,

EGoM decision on gas utilisation-II: Allocation priorities fixed for KG D6 field

June 24: The production of natural gas from RIL's KG D6 field is expected to commence from September 2008 and will initially be about 25 mmscmd. It is further expected that the production would gradually increase to 40 mmscmd by March 2009. The EGoM decided that this gas should be supplied in the following order of priority:Existing gas based urea plants, which are now getting gas below their full requirement, would be supplied gas so as to enable full capacity utilization. A maximum quantity of 3 mmscmd would be supplied to existing gas based LPG plants.

Up to 18 mmscmd natural gas, being the partial requirement of gas-based power plants lying idle/under-utilized and likely to be commissioned during 2008-09, and liquid fuel plants, which are now running on liquid fuel and could switch over to natural gas, would be supplied to power plants.

A maximum quantity of 5 mmscmd would be made available to City Gas Distribution projects for supply of Piped Natural Gas (PNG) to households and Compressed Natural Gas (CNG) in transport sector.

Any additional gas available, beyond categories (i) to (iv) above, would be supplied to existing gas-based power plants, as their requirement is more than 18 mmscmd.

Source : indianpetro.com

EGoM decision on gas utilisation-I: Allocation priority would not impact the process of price discovery

June 24: The Empowered Group of Ministers (EGoM) considered the "Concept Paper on Gas Utilisation Policy" circulated by the petroleum ministry and took the following decisions on sale of natural gas by NELP contractors:

Contractors would sell gas from NELP to consumers m accordance with the marketing priorities determined by the Government. The sale would be on the basis of formula for determining the price as approved by the Government.

Consumers belonging to any of the priority sectors should be in a position to actually consume gas as and when it becomes available. So the marketing priority does not entail any 'reservation' of gas. It implies that in case consumers m a particular sector, which is higher in priority, are not in a position to take gas when it becomes available, it would go to the sector which is next in order of priority.

In case of default by a consumer under a particular priority sector and further in the event of alternative consumers not being available in the same sector, the gas will be offered by Contractor to other consumers in the next order of priority.

The priority for supply of gas from a particular source would be applicable only amongst those customers who are connected to existing and available pipeline network connected to the source. So if there is a marginal or small field that is not connected to a big pipeline network, then the Contractor would be allowed to sell the gas to customers who are connected or can be connected to the field in a relatively short period (of say three to six months).

The priority would not impact the process of price discovery whenever it is undertaken, as all the customers would participate in the price discovery process (as already decided by the EGoM) and would be eligible for utilizing natural gas subject to priority.

Since the supply situation is expected to increase substantially in the near future in view of increased availability from domestic sources and imported gas (LNG/ transnational pipelines), these guidelines would be applicable for the next 5 years after which they would be reviewed.

The EGoM also said that as a matter of general policy, natural gas produced/imported in the country should be stripped of its higher fractions subject to availability, to ensure maximum value addition before supply to consumers.

Source  : indianpetro.com

No tax holiday on gas production

The petroleum ministry has however told the finance ministry that the tax holiday should be allowed as companies drilling in blocks do not know whether they'll find oil and gas. "Also oil and gas occur together in most cases. Then how does one separate the two for paying taxes," wondered a petroleum ministry official. The issue was referred to the law ministry in May this year. Oil companies have however been confused as to how to structure their bids for blocks under Nelp VII in the absence of clarity on the issue. The petroleum ministry went into a huddle on Friday, the last working day before the bidding closes, attempting to settle the tax holiday issue. "We were expecting a clarification from the finance ministry two days back. However, nothing has come," a senior petroleum ministry official said. The bid deadline has already been postponed three times because of lack of clarity on the issue.

Source: BS