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Summary of "Natural Gas in India" (IEA Working Paper, 2010)

Core Content

This document provides an overview of the Indian natural gas market, focusing on its structure, pricing, domestic production, imports, and demand as of mid-2010. It highlights the challenges and opportunities for the sector, including the role of government regulation, the impact of pricing reforms, and the need for improved infrastructure and policy frameworks.

Main Viewpoints

• Rapid Growth Potential: The Indian gas market is expected to grow rapidly over the next two decades, with demand projected to increase by 5.4% annually, reaching 132 bcm by 2030.
• Current Share in Energy Mix: Natural gas accounts for only 6% of total primary energy supply (TPES), significantly lower than coal (37%) and biomass/waste (27%).
• Historical Development: The Indian gas industry began in the 19th century and saw significant growth post-independence in the 1950s and 1960s. The establishment of ONGC and OIL in the 1950s and 1960s laid the foundation for the sector.
• Regulatory Structure: The Ministry of Petroleum and Natural Gas (MoPNG) oversees the gas market, including exploration, production, refining, and distribution. The Directorate General for Hydrocarbons (DGH) regulates the upstream sector, while the Petroleum and Natural Gas Regulatory Board (PNGRB) oversees the downstream market.
• Pricing System: India has a dual pricing system: APM (Administrative Price Mechanism) for state-owned companies and non-APM for private and joint venture (JV) operators. APM prices were increased from USD 1.8/MBtu to USD 4.2/MBtu in May 2010, signaling a shift in policy.
• Supply Challenges: Domestic production has been increasing, especially with the development of the Krishna Godavari KG-D6 field, but it is still insufficient to meet rising demand. LNG imports are expected to grow, and new terminals are being built.
• Demand Analysis: Power generation and fertiliser production are the main consumers of gas. These sectors are price-sensitive and often rely on government subsidies. City gas and industrial users show more flexibility but are still emerging.
• Infrastructure and Transmission: Transmission infrastructure is primarily concentrated in the northwest and is inadequate for other regions. The development of new pipelines is crucial to expand gas access to more cities and industries.
• Regulatory Uncertainties: The PNGRB's role in issuing city gas distribution (CGD) licenses was challenged by the Delhi High Court in early 2010, which raised concerns about the regulatory environment and the ability to attract private investment.
• Future Outlook: The gas market is at a critical juncture, with the need for more transparent pricing, improved supply, and better infrastructure to unlock its full potential.

Key Information

Domestic Production

• Historical Trends: Gas production was dominated by state-owned companies, but private and JV participation has been increasing.
• New Exploration Licensing Policy (NELP): Introduced in the 1990s, NELP VIII round led to the discovery of the KG-D6 field in April 2009.
• Production Growth: Domestic production is expected to double between 2008 and 2012, driven by the KG-D6 field and other discoveries.
• Unconventional Gas Potential: There is potential for unconventional gas, but it remains underexplored and underdeveloped.

Imports

• LNG Imports: India has been increasing LNG imports, with new terminals being built to meet rising demand.
• Import Infrastructure: The development of LNG terminals is a key strategy for meeting future gas needs.

Demand

• Current Consumption: In FY 2009/10, gas consumption reached 59 bcm, up from 43 bcm in FY 2008/09.
• Sectoral Use: Power generation accounts for around 40% of gas use, while industry accounts for about 47%.
• Price Sensitivity: The power and fertiliser sectors are particularly sensitive to price changes, which could affect their use of gas.

Regulatory and Policy Issues

• Dual Pricing System: APM and non-APM gas pricing create disparities and challenges for market development.
• PNGRB's Role: The regulator is responsible for downstream market rules, including licensing, tariffs, and access to distribution networks.
• Legal Challenges: The Delhi High Court ruling in early 2010 questioned PNGRB's authority to issue CGD licenses, highlighting the need for a clear and transparent regulatory framework.

Conclusion

The Indian gas market is at a pivotal moment, with the potential for significant growth. However, it faces several challenges, including pricing disparities, supply shortages, and regulatory uncertainties. The government's recent reforms, such as the increase in APM prices and the introduction of the Open Acreage Licensing Policy (OALP), are steps toward a more competitive and transparent market. To fully realize this potential, continued efforts in infrastructure development, regulatory clarity, and policy reform are essential.

Key Tables and Figures

• Table 1: Indian gas market at a glance (1990–2009), showing the growth in domestic production and consumption.
• Figure 1: Domestic net gas production by region.
• Figure 2: Level of exploration.
• Figure 3: Generation capacity in India (June 2010).
• Figure 4 & 5: Comparison of generation costs between coal and gas-fired plants.

Acronyms and Abbreviations

• APM: Administrative Price Mechanism
• CGD: City Gas Distribution
• DGH: Directorate General for Hydrocarbons
• IEA: International Energy Agency
• MoPNG: Ministry of Petroleum and Natural Gas
• ONGC: Oil and Natural Gas Corporation
• OIL: Oil India Ltd
• PNGRB: Petroleum and Natural Gas Regulatory Board
• PSC: Production Sharing Contract
• RIL: Reliance Industries Ltd
• RNRL: Reliance Natural Resources Ltd
• NELP: New Exploration Licensing Policy
• OALP: Open Acreage Licensing Policy