By Siddharth Srivastava
Asia Times Online
www.atimes.com

NEW DELHI - A report by India's Ministry of Petroleum has said that the country will possess surplus natural gas in the next two years and its rapidly growing economy is likely to be fueled by it after major discoveries by state-run and private energy companies. Currently, India meets 70% of its energy requirements through imports.

"The major natural-gas recoveries off the east coast and aggressive acquisition of oil and gas blocks overseas might make India a gas-surplus country in another two years, and the natural fuel is all set to replace the country's agrarian-based economy," said the report. "The planned cross-country gas pipeline and city gas-distribution networks will go a long way towards influencing India's economy."

The report said that in another five years, almost all commercial vehicles in the country would switch over to compressed natural gas (CNG), which is a cheaper alternative to gasoline. India imports 70% of its crude-oil requirements and is able to meet only half of its gas demand of 170 million standard cubic meters per day (mmscmd).

India's largest private company, Reliance Industries Ltd (RIL), is expected to be a significant contributor to India's becoming a gas-surplus nation.

RIL should start production from the gas-rich Krishna-Godavari (KG) basin by mid-2008. Estimates of production from the block (dubbed KG-D6) were doubled to 80mmscmd recently, which is almost equal to the 84mmscmd of gas produced in the country today.

Other operators in the KG basin area, such as the Gujarat State Petroleum Corp (GSPC), are also expected to start production by January 2009.

One of the biggest and most significant discoveries in the hydrocarbon sector in India took place in June 2005 when the GSPC consortium struck gas at its KG-8 well in the KG Block off the coast of Andhra Pradesh. The well has an estimated reserve of 20 trillion cubic feet (tcf), which makes it the largest Indian gas reserve, the value of which is estimated to be Rs2 trillion (US$44.6 billion). Daily production is estimated to be in the range of 65 million to 70 million standard cubic meters.

The GSPC find eclipsed the 14tcf discovery, also in the KG Basin, in 2002 by RIL, though there is some controversy about the estimates, with RIL considerably revising the find.

There is no doubt, though, that there will be a sharp increase in domestic gas production, which will go up to 188mmscmd in 2009-10, according to the Directorate General of Hydrocarbons.

The infrastructure is being put in place. According to the report, the government-run Gas Authority of India Ltd (GAIL) has plans to set up a national gas grid, while RIL is laying pipelines to bring gas from the coast of the southern state of Andhra Pradesh (KG basin) to Mangalore in the south, Jamnagar in the west and Dadri in the north. This pipeline will connect cities along the route and help alleviate the country's gas shortage.

RIL is mulling a proposal to form a 50:50 joint venture with Indian Oil Corp and GAIL for city gas-distribution projects.

Since the government opened the energy sector to private participation, many global and domestic players have applied for gas-distribution rights. Reliance has emerged as the biggest domestic player and has applied for distribution licenses in 100 cities. Reliance chairman Mukesh Ambani has said the company's gas supplies to consumers will cost 30% less than gas sold by state-owned utilities. This move is set to create stiff competition.

Not to be left behind, GSPC plans to implement gas-distribution and CNG projects in 40-odd cities and towns of Gujarat. The projects, currently in various phases of development, will supply gas to domestic, commercial and industrial consumers.

However, as in the case of garnering overseas oil resources, the specter of China always looms large. India is desperately looking for long-term gas-supply contracts with gas-rich nations in Central Asia, Africa and the Middle East. Some 12,000 megawatts of India's gas power plants continue to run at only half their capacity.

After a recent decision by the government of Myanmar to supply gas to China, India is making swift maneuvers to ensure the $1 billion Myanmar-Bangladesh-India gas pipeline becomes a reality.

India has signed a further gas deal with Myanmar's government to explore Block A-7 off the coast of Arakan state, with GAIL a part of the consortium. The agreement means GAIL is now active in three blocks off the coast of Arakan state, having already secured agreements to exploit blocks A-1 and A-3.

India has also decided to join the US-backed Turkmenistan-Afghanistan-Pakistan pipeline, especially because of the geopolitical and price wrangles involving the $7 billion Iran-Pakistan-India (IPI) pipeline, which Washington vehemently opposes.

India has again been outmaneuvered by China, which has struck a new deal with Iran to purchase liquefied natural gas (LNG). Reports say China has agreed to buy 3 million tonnes of LNG annually for 25 years at a price of about $5 per million British thermal units (mBtu), vastly superior to India's price of $2.9 per mBtu in the agreement signed in June 2005, which Tehran has said is not possible to abide by.

In response to the offer by China, India has reportedly raised the offer price of 5 million tonnes of LNG, to be imported from Iran for 25 years, by a maximum of 50%. Against the earlier quoted price of $3.215 per mBtu, it will pay $4.775 per mBtu, a top government official has said.

However, on a brighter note, an oil pipeline running from resource-rich Russia to energy-hungry India and China is under "active consideration", according to reports. One plan is for the pipeline to run from Russia to Altay in the Xinjiang Uygur autonomous region in northwestern China, climb the Tianshan Mountain, and extend south to Kunlun Mountain until it reaches India.

Also, Qatar has recently raised LNG supplies to India from 5 million tonnes a year currently to 7.5 million a year beginning June 2009. Qatar is providing the gas to India under a 25-year contract signed in July 1999.

India is also looking to engage with Russia closely to tap new energy sources. India's flagship Oil and Natural Gas Corp (ONGC) is in talks over exporting its share of natural gas from Russia 's Sakhalin-1 via Royal Dutch Shell's LNG terminal.

Indian policymakers are also trying to rope in state-run Russian gas monopoly Gazprom - by first agreeing to its proposed gas-swapping arrangement with Iran for the IPI pipeline and then seeking Russian cooperation for participation in the entire LNG chain for Sakhalin.

ONGC has kicked off negotiations with the ExxonMobil consortium for importing 8 million tonnes of LNG to India from the Sakhalin gas fields. To strike the deal, the company has set up a price negotiation committee. Indications are that ExxonMobil, which has a 30% stake and is also the operator of the field, is open to considering the option of shipping the LNG.

India has also been encouraging power and fertilizer plants to switch to cheaper natural gas from naphtha to cut costs. This has lead to a surge in demand as domestic gas production adds to up to just half of the country's consumption. Recently, state-run Indian Farmers Fertilizer Cooperative Ltd has tied up with GAIL for supplies of gas from GAIL's main west-north Hazira-Bijaipur-Jagdishpur pipeline.

Natural gas has emerged as a more environmentally sound, cheaper and easily available substitute to oil. When compared with the peak price of oil at close to $80 a barrel, an equivalent amount of gas costs only in the region of $20-25.

Siddharth Srivastava is a New Delhi-based journalist.