University of Petroleum and Energy

ISSUES AND MARKETING STRATEGIES

OF NATURAL GAS IN INDIA

Date: 25 /07/09

gy Studies, Dehradun

ISSUES AND MARKETING STRATEGIES

OF NATURAL GAS IN INDIA

University of Petroleum and Energy Studies

ISSUES AND MARKETING STRATEGIES

Submitted by:

Shankar Deo Rajpal

(MBA Oil & Gas)

University of Petroleum and Energy Studies

Acknowledgement

It gives me immense pleasure to be attached with Niko Resources Limited, Hazira which

has provided me a very unmatched training in my summer Internships. I place special thanks

to the Chief General Manager Mr. Amar Jha for helping me in deciding my topic. I heartily

thank my training Heads Mr.M.P.Karan and Mr.Ravi Sharma for guiding me throughout

my training tenure. I also thank Mr.T.Shreekanth and Mr.Shammy Prahladan for

extending their support during my training.

Special my project mentors Mr. L.C.Ram and Mr.Peeyush Gupta for helping me

throughout my project “Issues and Marketing Strategies of Natural Gas in India” and

discussing details pertaining to the same.

Thanking you

Shankar Deo Rajpal

University of Petroleum & Energy Studies, Date:

Dehradun,Uttrakhand.

Index

1.Introduction 1

2.Government initiatives 2

2.1. NELP Regime 2

2.2. PNGRB 2

3.The Growth of Gas Infrastructure 3

3.1. Reliance proposed gas pipelines 3

3.2. Route and Length of Proposed Pipelines 3

3.2.1. Kakinada-Hyderabad-Goa-Uran Ahmedabad pipeline: 3

3.2.2. Jamnagar - Bhopal - Cuttack pipeline: 4

3.3. Gujarat Gas Grid Project: 4

4. Gas Pricing : 5

4.1. Gas pricing 1956-1986 5

4.2. Gas Pricing : 1987-1992 6

4.3. Gas Pricing : 1992-1997(Kelkar Committee) 7

4.4.Gas Pricing : 1997-2002 (Shanker Committee) 7

4.5.Gas Pricing: 2002 onwards (GoI) 11

4.6. Gas Pricing w.e.f. 1.7.05. 12

4.7. Briefing on the PSC as follows: 13

4.8. The summary of Gas Price evolution in Indian Market 14

4.9. Gas Pool Account 16

5. NELP:

5.1. Provisions relating to attracting Investment 17

5.2. Investment Multiple (IM) 17

5.3. NELP PSC Provisions related to Gas Prices 17

5.4. Principles for Valuation of Natural Gas 18

5.5. Pricing of Gas under the PSC 19

5.6. Option to take Profit Gas of the Government in Cash or Kind 19

5.7. Perspective on taking Profit Gas in Kind 19

5.8. Issues in taking profit gas in Kind 20

5.9. Issues in Gas Pricing under NELP 20

6. Proposal of RIL

6.1. Bid Process Steps 21

6.2. RIL Gas Price Formula 21

6.3. Rationale of 112.5*K 22

6.4. Rationale of linkage to Crude 22

6.5. Expected Delivered Gas Price 22

6.6. Profit Petroleum Sharing for D-6 block 23

6.7. IM Comparison of Gujarat NIKO fields 23

6.8. RIL – RNRL gas mega spat 23

6.9. Value addition from Natural Gas 24

7. Gas Marketing Strategies

7.1. Basis of MGL Pricing: 24

7.2. Domestic segment 25

7.3. Commercial A segment 26

7.4. Commercial B segment 26

7.5. Commercial C segment 27

7.5.1. Working formula 27

7.6. Commercial AC segment 27

7.7. Industrial segment 28

7.8. CNG segment 28

8. LNG

8.1. Import of LNG 29

8.2. Pricing of R-LNG 30

9. Potential other sources of natural gas: CBM 31

9.1 Contractual & Fiscal Terms 32

9.2. CBM Rounds 33

9.2.1. CBM I 33

9.2.2. CBM II 33

9.2.3. CBM III 33

9.3.Current CBM E&P Activities 34

10. Gas Hydrates 35

11.Gas supplies and prices as of Dec 2007 36

12.Conclusion 38

13.References 39

Tables:

1. Route and length of proposed RIL pipelines

2. Gas prices linkage to fuel oil

3. APM price in 2005

4. PSC for PMT&RAVVA

5. JV gas price table

6. RIL bid process

7. RIL gas price expectation

8. Profit petroleum sharing for D-6 block

9. IM comparison of Gujarat Niko fields

10. Basis of MGL pricing for CGD

11. LNG regasification proposal projects

12. CBM resources in India

13. CBM activity table

14. CBM: Past, present and future supply data

15. Gas supply and prices as of Dec 2008.

Figures:

1. Gujarat Gas Grid

2. Pipeline to link any source to any market

3. Existance of Gas Hydrates in the world

Annexure

Abbrevations

APM Administered Price Mechanism

ARA Arachidonic acid

BCM Billion cubic Meter

CBM Coal Bed Methane

CIF Cost Insurance Freight

CNG Compressed Natural Gas

Comm Commercial

Cu.Mtr. Cubic Meter

CV Colorific value

D-6 Dhirubhai-6

DGH Director General of Hydrocarbon

E&P Exploration & Production

EGoM Empowered Group of Minister

ER Exchange Rate

EWPL East West Pipeline

FOB Free on Board

GAIL Gas Authority of India Ltd.

GOI Government of India

GSPA Gas Sale and Purchase Agreement

HBJ Hazira Bijaipur Jagdishpur

HOEC Hindustan Oil Exploration Company Limited

HSFO High Sulphur Fuel Oil

IM Investment Multiple

JCC Japanese Crude Cocktail

JS

JS&FA

JV Joint Venture

Kcal Kilo Calories

KG D-6 Krishna Godavri Dhirubhai-6

Kgs Kilograms

Km Kilo meters

LDO Light Diesel Oil

LNG Liquified Natural Gas

LPG Liquified Petroleum Gas

LS/HS Low Sulphur/high sulphur

Mcf Million cubic feet

MCM Metric(thousand) cubic meter

MGL Mahanagar Gas Ltd,Mumbai

MGO Master Gas Offtake

Mkt Marketing

MMBTU Metric Million British thermal Unit

MMSCMD Metric Million standard cubic meter day

MMTPA Metric Million Tons per Annum

MoPNG Ministry of Petroleum and Natural Gas

MSCM Million Stabdard Cubic Feet

MW Mega Watt

N.E. North East

NEC One of Cauvery Blocks

NELP New Exploration License Providers

NG Natural Gas

NTPC National Thermal Power Corporation

OIL Oil India Limited

ONGC Oil and Natural Gas Corporation

PMT Panna-Mukta-Tapti

PNG Piped Natural Gas

PNGRB Petroleum and Natural Gas Regulatory Board

PSC Production Sharing Contracts

PTIM Pre tax Investment Multiple

RGTIL Reliance Gas Transportati Infrastructure Ltd.

RIL Reliance Industries Limited

RLNG Regasified Liquified Natural Gas

RNRL Reliance Natural Resources Ltd.

Rs. Rupees (Indian Currency)

SCM Standard Cubic meter

TNEB Tamil Nadu Electricity Board

USD United States Dollar

VAM Vapour Absorbtion Mechanism

w.e.f. with effect from

EXECUTIVE SUMMARY

This report focuses on the evolution of the Indian Natural Gas market right from 1960 to

2009. There has been major crest and troughs throughout this tenure along with the improper

and unfounded government decisions. But as the Indian Oil and Gas evolved, government

was keen to take up the responsibility and started the New Exploration Licensing rounds

called NELP. This report also provides the details of NELP and some major provisions

covered. A major achievement of the Natural Gas regulatory was the formation of the

PNGRB. Recently PNGRB has issued a draft regarding the regulation of the Natural Gas

distribution in the country.

One of the major initiatives taken up by the government is the proposal of a network of

natural gas grid throughout the country. The main purpose involve is to transfer the gas from

any source to any destination within India.

This report contains the brief idea about the pricing and the decision taken by the government

regarding the pricing of the natural gas both in the past and in the present. Kelkar committee

and the Shankar committee report are also covered in this report. The literature provides an

idea about the pricing determined under PSC and NELP. The PSC provision like IM

(Investment Multiples), profit in Kind and valuation of natural gas are included in this report.

Pricing details of one of the major Natural Gas suppliers RIL which has started its production

from the KG D6 block recently is also included along with the formula and the rationale

behind that formula. A small comparison of the IMs of RIL and NIKO fields are done here.

This report also provides an analysis of the RNRL-RIL conflict regarding the Gas allocation

and it’s pricing.

This report also holds an argument about the proposals of whether importing natural gas is a

good investment. Whether IPI and TAPI projects would be a good step forward as presently

there are claims for large gas reserves even by GSPC in KG basin.

The CGD (City Gas Distribution), Gas Pricing principles of MGL (Mahanagar Gas Limited,

Mumbai) is considered. The report covers the guideline principle regarding the pricing

principles for the different sections of the users categorized under domestic, commercial,

industrial and automobiles.

The report also contains about the Indian LNG scenario. The LNG projects proposed both by

the government and the private sectors and their respective locations are covered in this

report.

CBM has been taken as a potential Natural Gas sources in the future. Presently India is into

the 4th

rounds of CBM blocks allocation.

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1.Introduction

One may consider Natural Gas a very uninteresting gas – it is colourless, shapeless and

odourless in its pure form. But it has huge energy producing potential when burnt. A typical

composition table is shown below:

Methane CH4 70-90%

Ethane C2H6 0-20%

Propane C3H8

Butane C4H10

Carbon Dioxide CO2 0-8%

Oxygen O2 0-0.2%

Nitrogen N2 0-5%

Hydrogen Sulphide H2S 0-5%

Rare Gases A,He,Ne,Xe trace

Typical composition of Natural Gas

Natural Gas can be produced from fossil Natural Gas reserves (oil fields, gas fields & coal

fields), biogas and gas hydrates. A wide use of Natural Gas has made it a very important

commodity in the energy market. Natural Gas is used in power generation, domestic fuel,

transportation fuel, fertilizer, aviation, hydrogen production and petrochemicals.

As on date natural gas has not yet acquired a significant position in the Indian Energy Basket.

As per the present situation natural gas consumption is 8% while the consumption of crude

oil is nearly four times (31%) of it. A lot of capital deficit is being faced by the Government

Exchequing as 70% of the crude oil demand is met with imports. As per the Government of

India Hydrocarbon vision 2025’ there would be a lot of development in improving the natural

gas infrastructure in the country.

So far natural gas market has evolved very slowly with estimated just 0.5% of the world’s

total natural gas reserves. The production of natural gas in 1976 from Bombay High, western

coast has changed the situation dramatically in the past as far as Indian Gas market is

concerned. This was soon followed by the South Bassein free gas field in 1978. The major

consumers of this gas were the power and fertilizer sectors and gas being transmitted by

Hazira-Bijaypur-Jagdishpur (HBJ) cross country pipeline.

Government approved New Exploration License Provider (NELP) in 1997 to allow the

participation of foreign companies in production and also approved the PNGRB Act in 2007

for the structured marketing of natural gas. Under NELP the natural gas find in KG basin was

the largest gas find in 2002. The gas production of KG basin is likely to touch 80 mmscmd in

its full stream bring oxygen to the fuel starved existing power and fertilizer sector.

LNG has also been a major focus from the government. So far India has only 7.5 MMTPA

capacity with only two LNG terminals operational. There also has been an attempt to import

gas through pipelines from Iran, Myanmar and Bangladesh. From Iran it was the IPI pipeline.

IPI talks were almost nearing its conclusion regarding of the gas pricing before the political

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conflict seems to put it into a permanent halt. On the other hand GAIL failed to gain the

victory in the bidding process in Myanmar for LNG and no forwards of the pipeline also

seems to be in the news.

But so far it seems the Indian natural gas potential is such that the country not only needs any

import of gas but in the due future it will start exporting gas in LNG based upon the demand

and supply scenario of energy starving nations at a reasonable price.

At the end of NELP VII rounds there has been 206 contracts signed and 8 hydrocarbon

discoveries are made. Under NELP VIII 70 blocks are offered. And CBM IV too underway

with 10 blocks being offered. The last date for the bid acceptance is 10th

of August’09.

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2.Government’s initiatives

The Government approved NELP in 1997 to attract risk capital and technologies in the E&P

sector. The NELP Policy also emphasized on providing freedom to market oil and gas in the

country at market related prices. So far a total 206 contracts signed under seven rounds of

NELP and 68 hydrocarbon discoveries made so far under NELP. In NELP VIII (under bid

acceptance process) there are 70 blocks offered and under four categories. Type-S (10

blocks), 8 onland, 24 deepwater blocks and 28 shallow water blocks.

Large gas discoveries were made on East Coast ( World's largest gas discovery in 2002).Two

gas discoveries by RIL in D-6 KG deepwater block are almost developed and production has

started in March 2009.

2.1. NELP Regime

• Involves upfront commitment of risk money by Contractor without any liability on

the Government..

• It ensured full exploration/Development cost recoverable in event of discovery

• Cost Recovery limit & Profit petroleum sharing split are supposed to be negotiated

and became biddable parameters.

• Royalty is first charge on Contractor take.

• GOI Profit petroleum escalates rapidly after full cost recovery.This is determined by

the Investment Multiple (IM) in the PSC (Production sharing contract).

• Hence, financial accrual to Government depend upon discovery size and prices

obtained.

2.2. PNGRB

Formation of the Petroleum and Natural Gas Regulatory Board (PNGRB) draft has been the

most encouraging initiative taken by the government for a structured Indian Oil & Gas

market.

Its objective is to regulate refining,processing,storage,transportation,distribution,marketing

and sale of petroleum,petroleum products and natural gas excluding production of crude oil

and natural gas so as to protect the interest of consumers and entities engaged in specified

activities and to ensure uninterrupted and adequate supply and to promote a competitive

markets.

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3. The Growth of Gas Infrastructure

With the increasing development of the new gas fields there has been a considerable

expansion of natural gas pipelines across several parts of the country.The existing are about

6300km mainly operated by GAIL .The planned are around 8400 kms integrated network to

link any source o any market.

3.1. Reliance proposed Gas pipeline:

• Reliance has set up a Special Purpose Vehicle, Reliance Gas Transportation

Infrastructure Company Limited (RGTIL) to build, own, operate and transfer

pipelines and terminals for marketing and distribution of natural gas.

• RGTIL approached the Ministry of petroleum and natural gas for issuance of

notifications for Kakinada-Hyderabad-Uran-Ahmedabad gas pipeline projects

originating from Jamnagar to connect the proposed regasification terminal at

Jamnagar RIL’s block in Saurashtra and Kutch region and east coast blocks

(offshore).

• RGTIL proposed the following three pipelines:

� Kakinada-Hyderabad-Goa

� Jamnagar-Bhopal-Cuttack

� Hyderabad-Uran-Ahmedabad

3.2.Route and Length of Proposed Pipelines

Route Length (km)

Kakinada-Hydrabad-goa 1121

Jamnagar to Cuttak 1650

Phase-I Jamnagar to Bhopal 828

Phase-II Bhopal to Cuttak 822

Hydrabad – Uran – Ahmedabad pipeline 1079

Table.1

3.2.1.Kakinada-Hyderabad-Goa-Uran Ahmedabad pipeline:

Sources of gas supply to the proposed pipeline are:

• Gas from KG D-6

• Likely gas from adjoining exploration blocks of the Reliance on the Eastern Coast

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• Gas from blocks on Western coast.

3.2.2.Jamnagar - Bhopal - Cuttack pipeline:

• LNG import at Jamnagar [currently at hold]

• Reliance exploration blocks in Kutch and Saurashtra region

• CBM blocks in Madhya Pradesh

• NEC-25 block offshore in Orissa

3.3.Gujarat Gas Grid Project:

• Envisages transporting indigenous natural gas from production centers and LNG from

terminals to demand centers all over Gujarat through a high pressure Trunk Pipeline.

• Total length of the gas pipeline planned is 1200-1500 km. Project shall be

implemented in two phases. Phase I, from Vapi to Vadnagar at an estimated cost of

Rs. 12 billion and Phase II mainly in the Saurashtra region at an estimated cost of Rs.

13 billion

Fig.1 : Gujarat Gas Grid

To cover up the whole country,the map in the next page details the existing and planned

integrated Gas Grid.

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Fig.2

4. Gas Pricing:

4.1. Gas pricing 1956-1986

Supply of natural gas by Oil India Limited (OIL) started in February 1959, in Assam, and by

the Oil and Natural Gas Corporation (ONGC) in Gujarat in December 1964. During the

1970s, the price charged by ONGC was based on V. K. R. V. Rao committee and was Rs

50/MCM exclusive of sales tax, royalty, etc. The price was valid up to March 31, 1971.

The price of gas for the period April 1 , 1971, to March 31, 1976, was fixed at Rs 66/MCM

by the Governor of Gujarat and Minister, MoPNG.The price was exclusive of royalty, sales

tax and transportation charges and applicable for gas from Cambay and Ankleshwar in

Gujarat.

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OIL charged a gas price of around Rs 9/ MCM in the Upper Assam region, exclusive of

royalties, duties etc. In the late 1960s, OIL supplied gas at the rate of Rs 52.5 per MCM

exclusive of taxes, duties and transportation charges.

In 1969, ONGC started supplying gas in Assam and adopted the same price. In 1976, ONGC

decided to revise the gas price based on alternative fuel parity. ONGC started supplying gas

to new consumers and old consumers entering in new contracts on the basis of thermal

equivalence based on coal. This resulted in increase in gas price to Rs 210/MCM. In 1977-78,

the price rose to Rs 350/MCM inclusive of royalty but exclusive of transportation charges.

In 1978, ONGC started supplying gas to consumers from Uran, Maharashtra charging gas

prices to consumers on the basis of thermal equivalence of alternative fuels used by the

consumers viz. coal, naphtha and furnace oil. The prices therefore, varied from consumer to

consumer and use to use.

A study on gas pricing by Chief Cost Adviser recommended gas prices of Rs 185/MCM, Rs

250 MCM, Rs 320 MCM for Assam State Electricity State Board, Hindustan Fertilizer

Corporation Ltd & other consumers and tea industry, respectively. Exclusive of royalties,

taxes, etc. and the transportation cost. OIL adopted these prices for the supplies made in

Assam.

On January 1, 1982, ONGC decided to adopt the principle of thermal equivalence in

determining prices of gas for Gujarat and prices were in the range of Rs 2100/MCM to Rs

2,500 MCM for fertilizer and other industries and about Rs 850/MCM for power plants.

The prices in the Eastern Region, which had lower industrial infrastructure facilities, was

much lower than in the Western region. Consequently flaring was much higher in the Eastern

Region than Western region. This resulted in multiple pricing of gas varying from Rs

92.50/MCM to Assam State Electricity Board in the Eastern region to as high as Rs

2,940/MCM for offshore gas supplied by ONGC in the Western region.

4.2. Gas Pricing: 1987-1992 (GoI)

A Committee of Secretaries is subsequently called, the Empowered Group of Ministers.

Committee determined a pricing structure to put gas on parity with other competing fuels in

the key industrial sectors, with differentials to reflect transport costs.

The exception was for gas sold for fertilizer use where a flat tariff was charged.

Fixed uniform gas price based on long-term average cost of production, regardless of the end

use and the location of consumer along HBJ pipeline from January 30, 1987 was as follows:

• Offshore gas at landfall point and onshore gas - 1400/MCM

• Transportation charges for Gas sold along HBJ pipeline - Rs. 850/MCM

• Gas sold in North-Eastern States (with further concession/discount in the price

up to Rs 500 /MCM on a case to case basis).

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The above prices were applicable for gas with calorific value ranging between Rs.

8500 to Rs.10, 000 Kcal /cubic meter. For gas supplies with calorific values beyond

this range, there was a discount premium based on the mid-point of the

range i.e., 9,250 Kcal/cubic meter.

4.3. Gas Pricing: 1992-1997 (Kelkar Committee)

Price of natural gas was fixed by Committee headed by Dr.Vijay Kelkar w.e.f.

January 1, 1992 were as follows:

• Offshore gas at landfall point and onshore gas - Rs.1,550/MCM w.e.f January 1, 1992

to be increased each year by Rs.100/MCM till it reached Rs. 1850/MCM

• Transportation charges for Gas sold along HBJ pipeline - Rs. 850/MCM

• Gas sold in North-Eastern States (with further concession/discount in the price up to

Rs 400/MCM on case to case basis).

The prices were exclusive of royalty, taxes, duties, etc

• The producer price payable to ONGC was kept fixed at Rs 1 ,500/MCM and the

difference between the producer price and the consumer price was credited to the Gas

Pool Account - an account set up to compensate gas producers and the transmission

company for the increased costs of producing gas from the North-East.

• The subsidized price in North-East India was decided because the law and order

situation was not conducive to industrial activity and a significant amount of gas was

being flared.

• By 1990, the demand of gas far exceeded availability, requiring GOl's intervention for

gas allocation through the inter-ministerial Gas Linkage Committee.

4.4. Gas Pricing: 1997-2002 (Shankar Committee)

Shankar committee recommended following pricing options:

• Gas prices were so far been fixed on a cost plus basis. Gas prices as fixed for the next

pricing period have to take into account the possibility of imports of natural gas/LNG.

The policy of moving towards market-determined prices has also to be taken into

account.

• Introduction of import parity prices or market-determined prices with immediate

effect would steeply increase the existing gas prices and were a not a feasible option.

• There was a significant difference between the cost of gas production between ONGC

and OIL. This difference is due to factors such as gas field geology and is not due to

mismanagement on OIL's part. A higher producer price has, therefore, to be allowed

to OIL.

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• The option of equalizing transportation cost along the HBJ and the other smaller

pipeline systems in Gujarat, Assam, etc., was not considered feasible.

• The transportation cost should be calculated separately for each pipeline so that

the viability of each pipeline can be assessed separately.

• The option of introducing distance-related transportation charges along existing

pipelines such as the HBJ pipeline was not feasible at present as investment deci-

sions have already been taken and units already come up all along the pipelines

based on the assurance of uniform transportation charges.

• Distance related charges were introduced along new pipeline systems and

potential customers should be notified in advance.

• The consumer prices would be the sum of producer prices and transportation

charges and a contribution to the Gas Pool Account which will be Rs.250/MCM

w.e.f. 1 April 1997 and would increase by Rs.200/MCM every year.

The recommended gas price is as follows:

• Producer price of ONGC - Rs.1 ,800/MCM

• Producer price of OIL - Rs. 1,900/MCM

• Transportation charge along HBJ - Rs. 1150/MCM

• Contribution to Gas Pool Account and increased by Rs.200/MCM every year -

Rs.250/MCM w.e.f. 1.4.1997

• These prices refer to gas with the calorific value of 10000 K Cal/Cu.Mtr. and

the transportation charge along the HBJ refers to gas with calorific value 8500

K Cal/Cu.Mtr.

• Concessional price for the North-Eastern States from Rs.l000/MCM be

increased to Rs.1200/MCM and the current discount of Rs.400/MCM be

reduced to Rs.300/MCM.

• The discount was extended to all new units set up within the pricing period for

the first five years.

• There is no uniformity in the Minimum Guaranteed Off-take (MGO) to be

agreed by consumers with GAIL/ONGC/OIL.

• The Committee recommended that the MGO be fixed at 80 percent of the

forecast for a month to be given by the consumer two months in advance.

Along the HBJ pipeline, transportation charges was to be payable to GAIL on the quantity

short-lifted with reference to the MGO.

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• “ONGC and OIL have so far not agreed to any penalty for short supply owing

mainly to the low price of gas compared to alternative fuels.”

• “Appropriately, higher gas prices linked to the price of alternative fuels may be

charged in such cases. “

• “Sales Tax on natural gas varies among the states. The variation is from nil

(Delhi) to 19 percent (Gujarat). The Committee felt that the proposal of bringing

natural gas within the meaning of "declared goods" under the Central Sales Tax

Act should be pursued so that a uniform tax at the rate of 4 percent is chargeable

in all states. “

• “A discount of 15 percent is allowed on the gas price for supplies from developing

fields. This discount may be extended to all isolated fields which cannot be

economically connected to the existing gas grids.”

• “In September 1997, GOI while accepting the numbers, related it to the price

parity with fuel oil, announced the pricing policy as a percentage of the fuel oil

parity in different years.”

• “Government also did not differentiate between producer price and the consumer

price.”

• “From October 1, 1997 to March 3, 2000, the consumer price of gas at land points

would be linked to the price of a basket of LS/HS Fuel Oils as shown in the table

below:”

Year General price

Concessional Price for the

North Eastern State

1997-98

55%

30%

1998-99

65%

40%

1999-2000

75% 45%

Table.2

• “General Price would vary between the floor price of RS.2, 150/MCM and the

ceiling price of Rs.2,850/MCM.”

• “The concessional price for the NorthEastern States would have a floor price of

Rs.1, 200/MCM and a ceiling price of Rs 1,700/MCM.”

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• “A discount of Rs. 300/MCM would also be available for existing consumers in

the NorthEast on a case-to-case basis for new units in these set up during 1997-

2002 for a period of five years.”

• “ The consumer price of gas would be linked to a calorific value of 10,000

cal/m3.”

• “The existing linkage between price and calorific value would be retained till gas

prices can be denominated in terms of calories would be expedited in consultation

with ONGC, OIL and GAIL.”

• “The consumer price of gas will be reviewed at the end of the first three years

(1997-2000) with a view to achieving 100 percent Fuel Oil parity prices over the

4th and 5th years.”

• “ Over the period October 1, 1997 to March 31, 2000, the transportation charge

payable to GAIL along the HBJ pipeline would be Rs. 1,150 MCM.”

• “ The transportation charge will increase by 1 percent for every 10 percent

increase in the consumer price index.”

• “This increase will be paid to GAIL out of the Gas Pool Account. The

transportation charge will be linked to the calorific value of 8,500 k cal/cu.mtr.”

• “In addition to the price as fixed above, the transportation charges and royalty,

taxes, duties and other statutory levies on the production, transportation and sale

of natural gas will be payable by the consumers.”

• “Out of the consumer prices collected by GAIL, GAIL will retain the amount

required to pay for the higher cost of gas purchased from the JVs.”

• “An amount of Rs. 250 crore per year will also be deducted by GAIL from the

consumer prices collected and credited to the Gas Pool Account to continue to

compensate OIL for concessional gas price in the NorthEast.”

• “This will enable it to continue providing a marketing margin to GAIL;

compensate GAIL/OIL for increases in the operating cost on account of inflation

and for utilization on R&D for exploration and exploitation of small fields.”

• “Any balance amount left in the Gas Pool Account after taking care of the above

requirements would be transferred to the Central Exchequer.”

• “ To compensate OIL for concessional gas prices in the North-East, the producer

price of OIL will be Rs.1900 MCM which will be increased by 1 percent for every

10 percent change in the consumer price index.”

• The Gas Pool- Account may be administered by a Committee with the following

members:

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• JS&FA, Ministry of Petroleum and Natural Gas - Chairman

• JS (Exploration), Min. of Petroleum and Natural Gas - Member

• Director (Natural Gas) Min. of Petroleum and Natural Gas - Member

• “GAIL shall pass on to ONGC and OIL in proportion to the gas supplied by them,

on a net back basis the entire proceeds of sales of gas of ONGC and OIL, after

making deductions under paras above.”

• “Consumer Price was, subject to a ceiling of Rs.2,850 per MSCM and a floor of

Rs.2,150 per MSCM.”

• “Consumer price of gas was intended to be reviewed after 3 years with a view to

achieve 100% Fuel Oil Parity pricing over 4th and 5th year, i.e. in 2000-01 and

2001-02.”

• “ However, this did not happen and the price of Rs.2,850/MSCM continued till

30.06.2005, which was about 34% of the then fuel oil prices.”

4.5. Gas Pricing: 2002 onwards (Gol)

In October 1999 the price reached this ceiling. But as international oil and gas prices

continued to rise in 2000, plans to achieve full import parity were abandoned, and the

gas price remained unchanged up to May 2005.

The price of APM gas of ONGC and OIL was revised effective July 1, 2005. The

salient features were as follows:

• ONGC and OIL produced about 55 MMSCMD APM gas from nominated fields.

• Consumer Price was, subject to a ceiling of Rs.2,850 per MSCM and a floor of

Rs.2,150 per MSCM.

• Consumer price of gas was intended to be reviewed after 3 years with a view to

achieve 100% Fuel Oil Parity pricing over 4th and 5th year, i.e. in 2000-01 and

2001-02.

• However, this did not happen and the price of Rs.2,850/MSCM continued till

30.06.2005, which was about 34% of the then fuel oil prices.

• Consumer price of APM gas was increased from Rs. 2,850 per thousand SCM to a

fixed price of Rs. 3,200 per thousand SCM on an adhoc basis.

• All available APM gas would be supplied to only the power and fertilizer sector

consumers against their existing allocations along with the specific end-users

committed under Court orders! small scale consumers having allocations up to

0.05 MMSCMD at the revised price of Rs. 3,200 per thousand SCM.

13 | P a g e

• This price is linked to a calorific value of 10,000 kCal/m3.

• The gas price for transport (CNG), Agra-Ferozabad small industries and other

small scale consumers having allocations up to 0.05 MMSCMD would be

progressively increased over the next 3 to 5 years to reflect the market price.

4.6. Gas Pricing w.e.f. 1.7.05.

• Under Gas pricing order dated 20.6.05.

• The consumer price was revised to Rs.3,200/MSCM for the following categories

of consumers. It was also decided that all the APM gas (estimated at around 55

MMSCMD) will be supplied to only these categories.

a. Power sector consumers

b. Fertilizers sector consumers

c. Consumers covered under court orders

d. Consumers having allocations of less than 0.05 MMSCMD.

• Price of gas supplied to small consumers and transport sector (CNG) increased

over the next 3 to 5 years to the level of the market price.

• With effect from 06.06.2006, the APM gas price to small consumers and CNG

sector has been increased to Rs.3840 / MSCM.

• It was decided that the gas price to other consumers, which were hitherto getting

gas at APM price through GAIL network, would be market determined.

The table below sums up the price of APM gas in the country:

S.No.

Customer Category

Price (Rs/MSCM)

Price (USD/MMBTU)

1 Power & Fertilizers

3200

1.98

2 City Gas & Small Consumers

up to 0.05 MMSCMD

3840

2.37

3 Power & Fertilizers - North East

1920

1.19

4 City Gas & Small Consumers

up to 0.05 MMSCMD -North

East

2304

1.42

Table.3

14 | P a g e

Note:

Prices are @ 10000 Kcal/SCM

Exchange Rate is SBI TT Selling rate on 28.05.07 i.e INR 40.76/USD

• In May 2007, the Tariff Commission recommended a revision of the APM gas prices

as follows:

• Revised the producer price to Rs. 3600/MSCM for ONGC

• Revised the producer price of OIL to Rs. 4040/MSCM for which it will sell at

60% in the North East region.

PSCs contain the following pricing provisions: -

JV Price formula

Floor

Price

Ceiling

Price

Commencement of

gas supplies

PMT

Price linked to a basket of international average

of preceding 12 months Fuel Oil prices

(Cargoes FOB, Med basis, Italy (1% sulphur);

Cargoes CIF, NEW basis ARA (1% Sulphur);

Singapore, FOB, HSFO 180 Mid est (3.5%

sulphur); Arab gulf, FOB, HSFO, 180 Mid est

(3.5% sulphur))

2.11

3.11

June'97-Tapti Feb'98-

Panna-Mukta

Ravva

Price linked to average of Fuel Oil for

preceding 12 months (3%/3.5% Sulphur

residual fuel oil of Singapore, FOB. Rotterdam

Barge and Med FOB)

1.75

3.00

Apr'97

Table.4

In terms of PSC for PMT, the ceiling prices are to be revised to 150% of 90% F.O. basket

(average of the preceding 18 months), after 7 years from the date of first supply.

4.7. Briefing on the PSC as follows:

• PMT sells 4.8 MMSCMD of gas themselves.

• The balance quantity of about 6 MMSCMD, GAIL paid @ $3.86/MMBTU during

2005-06 and is paying @ $4.75/MMBTU w.e.f 1.4.06 based on counter-matching the

price offered by prospective consumers in response to the bid floated by the

consortium.

15 | P a g e

• This gas is being supplied by GAIL to power and fertilizers sector consumers along

HBJ at APM price and adjustments being made through the gas pool account

mechanism in terms of the pricing order of 20.6.2005.

• This pricing order states that owing to the existing supply linkages and operational

requirements, it may well happen that the customers entitled for APM gas get physical

supplies of gas produced by the joint venture or from suppliers other than ONGC/OIL

at market price and vice versa.

• To operationalize the aforesaid decision, the Gas Pool Account mechanism would be

utilized, with the inflow into the pool account coming from APM gas sales to

consumers not entitled for APM gas at market price and outflow would be for

purchase of non-APM gas to supply to the consumers entitled for gas at APM price.

This arrangement would be subject to the ceiling of existing available APM gas from

ONGC and OIL (about 55 MMSCMD).

• In case of Ravva, the revision of ceiling price is due after 5 years from the date of

supply and the revised ceiling price is to be negotiated between the Buyer and the

Seller in good faith.

• Price revision for Ravva was due w.e.f. April 2002. The price revision has been

effected w.e.f. July 1, 2005 and GAIL has been paying @ $3.50/MMBTU since then.

• The share of this gas going to APM consumers is being charged by GAIL at APM

price, with adjustment through gas pool account mechanism. The total quantity of this

gas is around 1 MMSCMD.

4.8. The summary of Gas Price evolution in Indian Market

Important Aspects Gas Price (USD/MMBTU)

APM Gas

Pricing 1986

Govt. fixed the price of natural gas on

cost plus methodology in 1986 and fixed

a price of Rs.1400/MSCM w.e.f.

30.01.1987

0.86

APM Gas

Pricing Prior

to 1997

Dr.Vijay L Kelkar Committee

recommended natural gas price to

Rs.1550/MSCM w.e.f. from 1.1.1992

with provision of increase by

Rs.100/MSCM per annum

Rs.1850/MSCM till 1995.

0.95

to

1.13

APM Gas

w.e.f.

01.10.1997

Shri T.L. Shankar Committee

recommended to shift gas pricing

methodology from cost plus basis to

import parity pricing w.e.f. 1.10.1997

and link to the cheapest Fuel Oil Basket

with progressive increase in fuel oil

1.32

to

1.75

16 | P a g e

parity as given below :

Year % of Fuel Oil Parity

(other than N.E.)

1997-98 55% Consumer price

has a ceiling of Rs. 2850/MSCM

and floor price of

Rs.2150/MSCM

1998-99 65%

1999-2000 75%

Price review intended after 3 years to

achieve 100% Fuel Oil Parity pricing by

2001-02. However, above ceiling price

continued till 30.06.2005 at about 34%

of then fuel oil prices.

APM Pricing

Mechanism

w.e.f.

01.07.05

APM gas price was revised by pricing

order dated 20.06.05 to Rs.3200/MSCM

for Power, Fertilizer, consumers covered

under court orders and consumers

having allocation less than 0.05

MMSCMD.

Natural gas pricing for CNG and other

small consumers revised w.e.f.

06.06.2006 to Rs.3840/MSCM – Pricing

for these sectors would be increased in

next three to five years to the level of

market price.

Gas prices to other consumers, which

were hitherto getting gas at APM price

through GAIL network would be market

determined.

1.97

2.36

Pricing of

Gas Under

Pre-NELP

Production

Sharing

Contracts –

PMT

Price linked to a basket of international

average of preceding 12 months fuel oil

prices (with a floor of $2.11/MMBTU

and ceiling of $ 3.11/MMBTU.

The ceiling price were to be revised to

135% (150% of 90%) Fuel Oil basket

(average of preceding 18 months) after 7

years of commencement of supply. It

was revised in 2005-06 to $ 3.86

/MMBTU and further to $

4.75/MMBTU w.e.f. 01.04.2006.

2.11 to 3.11

3.86

4.75

Pricing of

Gas under

Pre-NELP

Price linked to average of fuel oil for

preceding 12 months (with a floor of

$1.75 to $ 3.0 / MMBTU).

1.75 to 3

17 | P a g e

Production

Sharing

Contracts –

Raava JV

Gas

The revision of ceiling price was due

from commencement of first supply and

effected w.e.f. 1.7.2005 to $3.5/mmbtu

3.5

Pricing of

Gas Under

Pre-NELP

Production

Sharing

Contracts –

Ravva

Satellite

This gas was priced at $ 3.3/MMBTU

till September 18th

2006 and was revised

after that at $4.3/MMBTU in term of the

provisions of the PSC.

3.3

4.3

Table.5

4.9. Gas Pool Account

• In 1992, the Government established the Gas Pool Account in order to encourage the

development of the gas industry in India and to compensate the companies involved

in the exploration, development and marketing of gas for the low margins on the

development and sale of gas at prices fixed by oil ministry. The landfall price and

producer price is credited to the gas pool account.

• GAIL maintains the Gas Pool Account on behalf of the government.

• Under the current pricing mechanism, GAIL collects Rs. 2.5 billion every year from

natural gas consumers on behalf of the gas pool account.

• This sum is used for the following purposes:

1. Payment of higher international gas prices for the new joint-venture companies;

2. Compensation to Oil India Limited (OIL) for subsidizing prices in the North-East;

3. Compensation to GAIL/OIL for increases in operating cost; and

4. Exploration and development of smaller fields.

The balance is transferred to the Central Exchequer. Gas Pool Account has now been

dismantled.

18 | P a g e

5. NELP:

5.1. Provisions relating to attracting Investment

• Contractor free to bid exploration inputs and opt for any additionality in work

programme until discovery stage.

• Mandate of Management Committee under chairmanship of Government nominee,

shifts to approval mode after discovery.

• Appraisal/Development Plan submitted by Contractor to be approved to the benefit of

all parties and not in any single party’s Interest.

• Marketing/pricing provisions assure returns based on free marketing market price

driven provisions with the only caveat of sales in India.

• Profit share ratio/split to be determined by pre tax

• Investment multiple (PTIM) formula, which rewards the Government in higher ratios

only at higher levels of revenues.

5.2. Investment Multiple (IM)

IM = Cum. NCIP / Cum. ED

NCIF = Cost Pet. + Profit Pet. + Incidental Incomes - Production Costs - Royalty Payments.

ED = Exploration Costs + Development Costs

(NCIP: Net Cash Inflow)

5.3. NELP PSC Provisions related to Gas Prices

Article 21.3: For the purpose of sales in the domestic market pursuant to this Article 21, the

Contractor shall have freedom to market the Gas and sell its entitlement.

Article 21.6.1: The Contractor shall endeavour to sell all Natural Gas produced and saved

from the Contract Area at arms-length prices to the benefits of Parties to the

Contract.

Article 21.6.2: Notwithstanding the provision of Article 21.6.1, Natural Gas produced from

the Contract Area shall be valued for the purposes of this Contract as

follows:

(a) Gas which is used as per Article 21.2 or flared with approval of the

Government or re-injected or sold to the Government pursuant to

19 | P a g e

Article 21.4.5 (flaring in case of Associated gas) shall be ascribed a

zero value;

(b) Gas which is sold to the Government or any other Government nominee

shall be valued at the prices actually obtained; and

(c) Gas which is sold or disposed of otherwise than in accordance with

paragraph (a) or (b) shall be valued on the basis of competitive arms

length sales in the region for similar sales under similar conditions.

Article 21.6.3: The formula or basis on which the prices shall be determined pursuant to

Articles 21.6.2 (b) or (c) shall be approved by the Government prior to the

sale of Natural Gas to the consumers/buyers. For granting this approval,

Government shall take into account the prevailing policy, if any, on pricing

of Natural Gas Including any linkages with traded liquid fuels. and it may

delegate or assign this function to a regulatory authority as an when such an

authority is in existence.

5.4. Principles for Valuation of Natural Gas

MoPNG had set-up a Committee under Chairmanship of JS&FA to lay down Guidelines for

approving Gas price/ formula for the purpose of determining Govt take under NELP

contracts. The summary of main recommendations of the gas pricing committee is given below:

1) Where valuation of natural gas has to be necessarily done by the Government, it may

be done based on the most recent competitively determined price in the region duly

indexed to the present.

2) The indexation shall be as per the provisions of market determined contracts as each

market determined price has a contract which sets out various terms and conditions of

supply of natural gas

3) Typically, long term gas contracts have a clause for periodic gas price reviews. If

price is reviewed as per the contract, that may become the new reference price. For

interim period, it may be linked to percentage increase in price of Furnace Oil (FO).

As it is not only the cheapest liquid fuel, but has also shown least price volatility.

• Above valuation methodology may be applied in cases where actual supply has commenced

but price could not be discovered through market mechanism.

• If the actual price at which any producer supplies to any consumer happens to be higher

than the one arrived at by above methodology, then the higher price shall be reckoned

for the Government take.

20 | P a g e

5.5. Pricing of Gas under the PSC

• As per the PSC contractor is required to sell the gas at competitive arms-length price

to the benefit of the . parties (i.e., the Government and contractor)

• The Contractor is required to get the price formula I basis approved by the

Government for the purpose of valuation of entitlements of the Government and the

contractor.

• Any lower gas price reduces the Government profit petroleum and royalty and may

also delay in reaching the investment multiple tranche where Government gets

progressively higher share. For D-6 block, the Government share increases from 10%

in the first IM tranche to 85% from fourth tranche onwards.

• Imposing a lower gas price on the contractor, apart from being against the provision

of the contract and NELP policy, may send wrong signals to the investor particularly,

at the time when NELP-VIII round has started.

5.6. Option to take Profit Gas of the Government in Cash or Kind

Under the NELP PSCs, the contractor has freedom to market the gas. The Government has a

right to take its share of· profit petroleum including gas in kind.

PSC provides option to take in cash or kind to be exercised on annual basis with option to be

exercised by 30th

June for the subsequent year. As per the PSCs, gas price for valuation of

entitlements of the parties is to be determined on the basis of competitive arms-length prices.

The Contractor is required to propose gas formula / basis for valuation purposes for approval

of the Government under the PSCs

5.7. Perspective on taking Profit Gas in Kind

In the past, companies have brought out operational and marketing difficulties in case the

Government exercises its option to take Profit Gas in Kind

• Quantum of Profit gas is dependent on several parameters such as exploration, development

and production costs (on an on-going basis), gas price, gas reserves, gas profile, any

additional development of discoveries in future, and any other investment under the PSC in

future. Hence, the profit gas is uncertain and difficult to predict.

• It will be very difficult for contractors to tie up markets / consumers as the quantum of gas

of both the contractors and the Government, if marketed separately, will be more uncertain.

• The Government has so far taken its entire profit gas share in cash under all the PSCs.

Undertaking total sale of the entire quantum of gas helps the contractor to realise better value

for the parties and also in entering stable gas sales contracts due to larger volumes. In case the

gas specification and delivery pressure of the Government share of profit petroleum is

21 | P a g e

different than the customers of the contractors, it will involve additional costs and will reduce

the value of the project. The option to take profit gas in kind by the Government may be

perceived as unfriendly and may deter inflow of investment in the E&P Sector, especially for

gas due to Governmental interface at the production and sale stages. Any distortion in

consumption pattern of a natural resource by artificially suppressing price may result in

inefficient use of the resource. The cost of replacing the used up reserve continues to

increase, and, hence needs to be provided for. As per estimates, there could be wide variation

in the Government share' of profit petroleum on year-to-year basis and the Government

nominee needs to prepare the marketing plans to address this situation. Consequently,

substantial volume of gas may have to be sold on spot basis leading to sub-optimal realization

of gas price.

5.8. Issues in taking profit gas in Kind

By choosing to take its profit gas in kind, the Government will have consequential legal

obligations to lift the gas and provide infrastructure / facilities synchronous to the contractors'

development plans / facilities .Government's ability to sell its gas at market price may be

hindered looking to ground realities in comparison to the contractor. This would impact on

Government revenue and lead to huge financial loss.

The estimate of Government share of profit petroleum depends on several parameters. It

would be quite difficult to estimate the share. There could also be wide variation on year-to-

year basis. This will have implications in planning infrastructure and capacities by the

Government or Its nominee. In case the gas specification, delivery pressure, etc, is different

for different set of consumers, it will involve additional costs leading to reduction in profit

petroleum.

5.9. Issues in Gas Pricing under NELP

Government is under contractual obligation to allow pricing of natural gas at arms length

principle to the benefit of all Parties to the Contract.

• For gas valuation purposes, for determination of government take, Government is

committed under the contract to adopt competitive, arms length sales.

• Lower price would depress total revenues and delay triggering of higher profit share

for the Govt.

• Lower cash flows owing to lower prices may leave smaller kitty for distribution of

profit petroleum with the Government.

• Any state intervention in price discovery may be perceived as investor unfriendly

and deter investment in the prospective deep water blocks which are big ticket

investments. Future gas discoveries globally are expected more from deeper and

ultra deeper offshore areas and hence costly.

• Any violation of contractual provisions may result in legal disputes delaying

production.

22 | P a g e

• Any subsidization of price would have to be extended across the board to all kinds

of consumers irrespective of their pricing exigencies.

6. Proposal of RIL

6.1. Bid Process Steps

Milestone Time line 1 Issue of Invitation to Quote

letters to

customers along with GSPA

Term Sheet

9th April 2007

2 Last date for receipt of

clarifications

26th April 2007

3 Issue of clarifications along

with revised GSPA Term

Sheet and price formula

4th May 2007

4 Receipt of all the bids 11th May 2007

5 Evaluation of Bids 14th May 2007

6 Submission of application to

MOPNG for price Approval

18th May 2007

7 Target date for Signing of

GSPA Term Sheets with

customers

15th June 2007

Table.6

6.2. RIL Gas Price Formula

SP (Rs/mmbtu) = 112.5 x K + ER x (CP-25)^0.15+ C

Where,

SP is the Sales Price of Gas in Rs/mmbtu (NCV basis)

CP is annual avg. Brent crude price for the previous FY

with a cap of $65/bbl and a floor of $ 25/bbl,

ER is the avg. US$/INR exchange rate for the previous FY,

K is 1 for ER between 25 and 65, or

ER/25 when ER is less than 25 or

ER/65 when ER or more than 65

C is the premium in Rs /mmbtu (positive integer) quoted

by customer

23 | P a g e

6.3. Rationale of 112.5*K Rs 112.5 / mmbtu (or $2.5/mmbtu @ Rs 45/US$) provides a floor to the price in case crude

price falls below US$ 25 /bbl

• Floor price of $2.5/mmbtu represents conversion factor of 1/10 at crude price of $25/bbl

• 'K' factor provides correction to the floor price in case of run on the Rs/US$ exchange rate

Rs 65/US$ or below Rs 25/US$

6.4. Rationale of linkage to Crude Oil

Globally gas prices have generally tracked oil prices

• Energy conversion factor from crude to gas ($/bbl to $/mmbtu) is '1/6'

• However, to reduce volatility of crude prices:

- an inverse exponential power has been used to dampen the linkage to oil prices

- linkage to previous year's average oil price further implying single gas price for entire year

- cap of $65/bbl insulates the customer from very high oil prices

6.5. Expected Delivered Gas Price

Andra

Pradesh

Maharashtra Gujarat HBJ/Price

$fmmbtu

A Commodity

price

Basic Price 4.33 4.33 4.33 4.33

Marketing

Margin

0.12 0.12 0.12 0.12

Sales Tax Rate 12.0% 3.0% 3.0% 3.0%

Sales tax 0.52 0.13 0.13 0.13

Total

Commodity

price

4.85 4.46 4.46 4.46

B Transportation

EWPL 0.17 0.93 0.93 0.93

GAIL 0.14 0.30 0.30 0.60

Service Tax 0.04 0.15 0.15 0.18

Total

Transportation

0.35 1.38 1.38 1.72

A+B Total Delivered 5.20 5.84 5.84 6.18

Table.7

Basic Gas Price at ER 01 Rs45/US$ and Brant Price 01 $651bbl

Mkt Margin of Rs 54/mmbtu converted at ER of Rs45/US$

EWPL tariff _ indicative tariff 01 RGTlL for East West Pipeline

GAlL Tariffs based expected reduction tariffs on account of higher capacity utilization

Expected Delivered Price $ 5.2 to 6.2 / mmbtu depending on location and taxes

24 | P a g e

6.6. Profit Petroleum Sharing for D-6 block

Invest Multiple(IM) tranche Government share of profit

petroleum

Contractor’s share of profit

petroleum

Less than 1.5 10% 90%

1.5 - 2.0 16% 84%

2.0 - 2.5 28% 72%

2.5 - 3.0 85% 15%

3.0 - 3.5 85% 15%

More than 3.5 85% 15%

Annual Cost Recovery Limit: 90%

Table.8

6.7. IM Comparison of Gujarat NIKO fields

Government share of profit petroleum

Invest Multiple(IM) tranche Hazira Surat

Less than 1 0% 0%

1.0 - 1.5 10% 20% 1.5 - 2.0 20% 30% 2.0 - 2.5 25% 40% 2.5 - 3.0 35% 50% 3.0 and above 40% 60%

Table.9

6.8. RIL – RNRL gas mega spat

Before 2006 demerger of the Ambani family assets in 2006 it was adjudicated that RIL will

supply KG gas to RNRL at the price converged for NTPC and at the same condition.Which

was $2.34/Mcf (subjected to EGoM approval) which is nearly half of the EGoM approved

unit sale price of $4.2/Mcf plus taxes and transportation for calculating its share of profit and

royalty.

The recent settlement at Bombay High court approves the RNRL claims for the same and

allocated 28 mmscmd RIL’s KG gas to RNRL at $2.34/Mcf for 17 years. But this was the

result of the family dispute. RIL has requested the Government that to continue as per the

PSC, as the nations interest is ahead of family’s interest.The question now arises whether this

decision would impact government revenue of rent being received.

If RIL loses, would mean two things. One, since RIL-NTPC settle is still under pipeline and

seeking approval from EGoM, there is an unclear benchmark for the RIL-RNRL pact. Two, if

the Gas is sold at a lower price , the royalty etc will still be calculated at government’s price.

RNRL would supply natural gas to the Gas fired mega power projects of Reliance Power at

Dadri which would then become the world largest gas fired power plant in the world with the

capacity of 7540 MW.

25 | P a g e

6.9. Value addition from Natural Gas

Along with fuel and petrochemicals, LPG is also the major product that can be produced from

natural gas. The deplorable thing about the RIL’s gas is that inspite of having a low colorific

value it is methane rich. So it can be not used in petrochemicals and LPG production. It is to

be understood that the network of natural gas has the limitations that it cannot reach the

remote area while LPG as a fuel can be major source of fuel to most of the remote areas of

this India.

7. Gas Marketing Strategies

7.1. Basis of MGL Pricing:

MGL has categorized its customers into the following table:

Category

Customers

Major Fuels

Replaced

No. of

Customers

Consumption

(In SCMD)

(Feb 07) (Feb 07)

Domestic

Households

Domestic LPG

>2.8 Lakh

113711

Com A

(<200SCMD)

Small Hotels &

Restaurants

Commercial

LPG

683

31166

Com A

Concessionary

(<200SCMD)

Charitable /

religious/

Government

Institutions etc.

Domestic LPG/

Commercial

LPG

Com B (200 - 1000

SCMD)

Small Scale

industries, 3 star

hotels, small

hospitals etc.

Commercial

LPG, LDO,

LSHS, FO

115

48092

Com C (1000 and

above)

5 Star Hotels &

Hospitals

Bulk LPG,

LDO, LSHS, FO

15 35794

Com AC (> 200 TR)

10

Industrial (1000 and

above)

Small / medium

sized industrial

establishments

LSHS, FO

40 156258

26 | P a g e

CNG

Four wheelers,

Buses & Autos

MS, HSD, LPG

1023570

Total 1408591

Table.10

7.2. Domestic segment

• Primarily NG used is used for domestic cooking and partially for water heating also

(Non commercial application)

• Replaces Domestic LPG cylinders (of 14.2 Kgs)

• PNG prices indexed to alternative fuel replaced i.e. domestic LPG.

• Domestic PNG Price was initially kept at 10% discount to domestic LPG (delivered

price) after Calorific Value (CV) adjustment.

• Sample calculations:

CV of LPG in Kcal / Kg : 10900

CV of Natural Gas Kcal/SCM : 8500

14.2 Kgs of LPG equals : 10900*14.2/8500 = 18.21 = Approx 18 SCM of NG (After

CV adjustment)

Price of LPG cylinder (delivered) as on Sep 1997:Rs 137.87

Delivered Price of PNG as on Sep 1997 = 90% x 137.87/18 = 6.89

Present delivered price of PNG is Rs 11.82 per SCM

• Price of domestic LPG cylinder has changed over the years, due to reduction in

subsidy. As on date the price of 14.2Kgs cylinder stands at approx Rs 297.

• Over the years MGL has increased PNG prices, however increase is not inline with

increase of LPG prices due to:

• Price sensitive market

• Large customer base

• Encourage potential customers to convert to PNG

27 | P a g e

� Considering the present prices of LPG and PNG the discount stands at 29% (approx)

7.3. Commercial A segment

• Commercial A segment: Predominantly in this sector PNG is used for commercial

cooking, as in case of small restaurants and hotels.

• Replaces Commercial LPG cylinders (of 19 Kgs)

• PNG prices indexed to alternative fuel replaced i.e. commercial LPG.

• Commercial A PNG price was initially kept at 10% discount to commercial LPG

(delivered price) after Calorific Value (CV) adjustment.

• Commercial A concessionary: Predominantly in this sector PNG is used for non

commercial cooking mainly as in case of charitable, religious, government

hospitals etc.

However presently, they are not offering this price benefit to any new customers as

Govt. has withdrawn this benefit from above establishments.

• Replaces domestic LPG cylinders (of 14.2 Kgs)

• PNG prices indexed to alternative fuel replaced i.e. domestic LPG.

• Prices in this segments is same domestic PNG.

• Price of commercial LPG cylinder has increased over the years. As on date the price

of 19 Kgs cylinder stands at approx Rs 752 i.e. approx Rs 40 per Kg.

• Over the years MGL has increased Comm A prices, however increase is not inline

with increase of LPG prices reasons being:

• Encourage more customers to convert.

• Large section were illegally using the domestic LPG cylinder of 14.2 Kgs,

hence for them price benefit was not attractive.

� Considering the present prices of LPG and PNG the discount stands at 46% (approx)

7.4. Commercial B segment

• Commercial B segment: Predominantly in this sector PNG is used for various

industrial applications such as industrial heating, stream generation, drying, tin

printing, commercial cooking, etc.

28 | P a g e

• Replaces Furnace Oil (FO) / Low Sulphur High Stock (LSHS), Light Diesel Oil

(LDO), High Speed Diesel (HSD), commercial LPG cylinders (of 19 Kgs).

• PNG prices indexed to LSHS.

• Commercial B PNG price are kept at 10% discount to LSHS (delivered price) after

Calorific Value (CV) adjustment.

• Commercial B prices are revised every month in line with variations in the LSHS

prices.

7.5. Commercial C segment

• Commercial C segment: PNG is used for commercial cooking, stream generation,

water heating, dryers, ovens etc.

• Replaces Furnace Oil (FO) / Low Sulphur Heavy Stock (LSHS), Light Diesel Oil

(LDO), High Speed Diesel (HSD), bulk LPG.

• PNG prices indexed to Fuel basked comprising of LSHS, LDO and LPG.

• Commercial C PNG price are calculated in the following manner:

• 70% weightage given to LSHS price (after CV adjustment and 10% discount)

• 27% weightage given to LDO (after CV adjustment)

• 3% weightage given to LPG (after CV adjustment)

This % mix was arrived based on fuel usage pattern of this consumer category.

7.5.1. Working formula:

Basic price (BP) of NG for Comm C = BP ((70% of LSHS *0.9)+ 27% of LDO + 3%

of Bulk LPG)

• Commercial C prices are revised every month in line with variations in the above fuel

prices.

7.6. Commercial AC segment

• Commercial AC segment: PNG is used for direct fired air conditioning machines

(VAM). This category was introduced in June 2000.

29 | P a g e

• Replaces electricity as fuel.

• Prices of NG was indexed to electricity initially with 10% discount. Discounted price

was offered to customers so that they can recover additional capital cost in 2 to 3

years period.

• 3% price escalation was envisaged for a period of first 3 years.

• Present delivered price of NG for this sector is Rs 8.784 per SCM.

• In view of price revision of non APM gas, NG price for this segment is in the process

of revision. The proposed price (delivered) is Rs 13.877 per SCM

7.7. Industrial segment

• Industrial segment: PNG is used for industrial use or application such as heating,

steam generation, powder coating, furnaces etc.

• Replaces Furnace Oil (FO) / Low Sulphur High Stock (LSHS), Light Diesel Oil

(LDO), High Speed Diesel (HSD), bulk LPG.

• Prices are indexed to LSHS price after CV adjustment and 10% discount.

• For the period effective from April 1, 2003 to December 31, 2004 CAP and FLOOR

for selling prices were fixed:

CAP - Rs.7.50 per SCM

FLOOR - Rs.5.66 per SCM

• Subsequently the above CAP and FLOOR prices were extended till June 05. After

GAIL price hike of Rs. 0.5 per SCM towards transportation charges, the cap price was

raised to Rs 8.00 per SCM.

• In June 2006, gas price was increased by Rs.4.50 per SCM for Non APM sector

(I&C). Subsequently, MGL had decided to pass-on only Rs. 2.50 per SCM to the

industrial customers and absorb balance Rs. 2.00 per SCM. Hence, industrial basic

gas price was revised from Rs.8.00 per SCM to Rs.10.50 per SCM w.e.f Dec 2006.

7.8. CNG segment

• CNG segment: CNG is used as fuel for Natural Gas Vehicles (NGVs)

• Replaces Petrol, Diesel, LPG.

30 | P a g e

• Initially CNG price was decided based on following parameters:

• Converted vehicle owners to recover the additional cost towards CNG kit

within a period of 1 year and

• Operating cost (towards fuel) of CNG vehicle is atleast 50% cheaper than that

of petrol vehicle.

• As on date the CNG is almost

• 70 to 72% cheaper than Petrol

• 40 to 45% cheaper than Diesel

• 50 to 55% cheaper than LPG

• Increase in CNG prices over the last few years were solely due to increase in either

gas purchase price or statutory taxes / duties.

8. LNG

8.1. Import of LNG:

Government initiative to satisfy the energy needs extended to import LNG. Petronet LNG

( Promoter being GAIL,ONGC,IOCL and BPCL) was the first venture initiated under GOI.

Petronet LNG further proposed projects in various areas but so far only one of its terminal is

operating at Dahej, Gujarat with a capacity of 5 MMTPA with long term contract with

RasGas, Qatar.

Shell Hazira regasification terminal was the 2nd

venture with Total Elf Fina as 26% partner.

Presently its main purchaser is GGCL and rest being put into HBJ pipeline on the RLNG

price.

The other proposed projects are as follows:

Port Location State Company/Consortium Capacity(mmtpa) Expected

commissioning

date

Pipavav Gujarat British Gas,

NTPC,Sea King

Infrastructure

2.5

Maroli Gujarat UNACOL 2.5

Dahej Gujarat Petronet LNG 5.0

Kakinada Andra Pradesh Indian Oil,

Petronas,BP

Amoco,Kakinada

Port Co.

2.5

31 | P a g e

Ennor Tamil Nadu TIDCO + Partner 5.0

Kochi Kerala Petronet LNG 2.5

Tuticorin Tamil Nadu Indian Gas 2.5

Vizag Andra Pradesh Total/HPCL 2.5

Manglore Karnataka Finolex 2.5

Hazira Gujarat Shell 2.5

Trombay Maharashtra Tata Power,TOTAL 3.0/6.0

Dabhol Maharashtra Dabhol Power 5.0

Table.11

8.2. Pricing of R-LNG

• Contract signed with Rasgas, Qatar for supply of 5 MMTPA LNG (equivalent to

about 18 MMSCMD] by Petronet LNG Limited and supplies were commenced from

April 2004.

• The price for LNG has been linked to JCC crude oil under an agreed formula.

• However, the FOB price for the period up to December 2008 has been agreed at a

constant price of $2.53/MMBTU. This translates to RLNG price of $3.86/MMBTU

ex-Dahej terminal.

• To make the price of RLNG affordable, EGoM has decided for pooling of prices of 5

MMTPA RLNG presently being imported from Qatar with the price of new RLNG

being imported on term contract basis.

• Ministry issued orders on 6.3.07. The pool price ex-Dahej of RLNG for various

consumers would be about US$ 4.92/MMBTU.

32 | P a g e

9. Potential other sources of natural gas: CBM

Coal bed methane as a source of clean natural gas has immense potential for India, especially

since there are rich sources in the Jharkhand and West Bengal regions. Methane gas is found

trapped in fissures in coal and extraction reduces explosion hazards in mines, thereby

reducing safety risks for miners. When burnt as fuel, methane has zero emission, whereas

when released into the atmosphere its global warming potential is 21 times that of carbon

dioxide over a span of 100 years.

There are, however, several factors that have hampered the realisation of this clean fuel

potential in India. Though the country is rich in reserves of bituminous coal containing

methane, the reserves are at depths of up to 1,200 metres and need appropriate drilling

equipment apart from know-how for extraction.

This, and the fact that converters to extract methane from coal beds are not available locally,

makes it imperative for India to have ties with other countries for technology and know-how

transfer. China is on the job, showering tax breaks and subsidies on coal bed methane

extraction companies and having an agreement with the US for technology inputs. India

should speed up its coal bed methane projects in order to generate clean fuel in areas easily

accessible from coal-bearing zones.

Methane capture and its utilization from coal mines is not being undertaken in India due to:

• Lack of latest technology

• Lack of expertise and experience

• Vague perception that commercial viability of exploitation and utilization of

Methane is doubtful.

Sl.

No

State Coalfield/Block Area of

delineate

d block

(Sq. KM)

Prognosticated

CBM Resource

as per DGH

Remarks

In

trillion

cubic

feet

In

billion

cubic

meter

1 West

Bengal

a. North

Raniganj

b. Eastern

Raniganj

c. Birbhum

232

500

1.030

1.850

29.17

52.38

Marginal

resource

may be in

Jharkhand

33 | P a g e

250

1.000

28.32

Sub Total 982 3.88 109.87

2 Jharkhand a. Jharia

b. East & West

Bokaro

c. North

Karanpura

69.20

93.37

340.54

2.407

1.590

2.181

68.16

45.02

61.75

Sub Total 503.11 6.178 174.93

3 Madhy

a

Pradesh

a. Sohagpur

b. Sohagpur

c. Satpura

495

500

500

3.030

1.000

85.79

28.32

Sub Total 1495 4.030 114.11

4 Gujarat a. Cambay

Basin

2400-

3218

11 to

19.4

311-

549.39

May not be

immediately

available

because

ONGC has

active

conventiona

l Oil & Gas

operations.

*As per

Advanced

Resources

Inc.

Grand Total 2980.11-

3798.11

25.088–

33.488

710.39-

948.73

Table.12 : Prognosticated Resource of CBM

9.1. Contractual & Fiscal Terms

The CBM policy provides an attractive fiscal & contractual terms, which are considered to be

one of the best in the world, with freedom to work in a

34 | P a g e

free and flexible working environment.

Some of the attractive terms offered by the Government are:

• No participating interest of the Government.

• No upfront payment.

• No signature bonus.

• Exemption from payment of customs duty on imports required for CBM operation.

• Walkout option at the end of Phase-I & II.

• Freedom to sell gas in the domestic market.

• Provision of fiscal stability.

• Seven years tax holiday.

9.2. CBM Rounds

9.2.1. CBM I

DGH in close interaction with Ministry of Coal (MOC), carved out several prospective CBM

blocks in different coalfields of the country, generated CBM related data and prepared

Information Dockets & Data Packages. In May 2001, for the first time in the country,

Government offered 7 blocks under 1st round of CBM bidding, out of which 5 blocks were

awarded and contracts signed. Contracts for another 3 blocks awarded on nomination basis

were also executed.

9.2.2. CBM-II:

Under 2nd round of CBM bidding 9 blocks were offered through international competitive

bidding in May 2003 with bid closing date of 15th October 2003. A total of 14 bids were

received for 8 out of 9 blocks offered. Contracts for these 8 awarded blocks were signed in

June 2004.

9.2.3. CBM-III:

International competitive bids have been invited by Government of India for 10 CBM blocks

under 3rd round of CBM bidding with bid closing date of 30th June 2006. There was an

overwhelming response to the CBM-III round of bidding. For the first time major foreign

E&P companies participated in the CBM-III bidding round. 70 nos. of data packages valued

Rs. 10 crores (approx.) were sold and a total of 54 bids were received for all the 10 blocks,

from 26 companies including 8 foreign and 18 Indian companies. All the 10 blocks received

multiple bids. The blocks were allotted amongst 4 companies /consortium. Contracts for

these 10 awarded blocks were signed in November, 2006.

35 | P a g e

9.3. Current CBM E&P Activities

• Area Opened Up for CBM Exploration 13600 Sq Km

• Blocks Awarded 26 Nos.

• CBM Resources in Awarded Blocks 1374 BCM

• Production Potential in Awarded Blocks 38 MMSCMD

• Exploration activities completed

Phase I 10 Blocks

Phase II 4 Blocks

• Commercial assessment is completed: 4 Blocks

• Development Plan approved 3 Blocks

• Commercial Production commenced 1 Blocks

• Present Gas production 1 lakh SCMD

Activity Commitment Achievement

Core Holes 201 140

Test/Pilot Wells 344 77

Investment (Rs. In Crores) 1350 400

Table.13

The chart shows the comparison of the Indian Natural Gas production and consumption in the

coming future.

PAST PRESENT FUTURE(2017)

Supply

31 bcm 50 bcm 65 bcm

company ONGC is major producer ONGC is major producer ONGC,RIL

Basins Bombay

high,Ravva,PMT,Cambay

Bombay

high,Ravva,PMT,Cambay

KG

Basin,Cauvery,Rajastan,Gujarat

Table.14

36 | P a g e

10. Gas Hydrates

Gas hydrates are the chemical formation in which methane is trapped in a cage like structure

of water molecule. These ice structure are found deep in the ocean at very low temperature

and high pressure.

1 volume of methane hydrates would contain 168 volumes of methane at STP.

Fig.3 Figure showing the probable existence of Gas Hydrates.

Presently its not commercially viable. But India has gone into agreement with Russia for the

related exploratory work. As per DGH, India has almost 2000 trillion cubic feet of prognostic

reserves, mostly along the eastern coast. Extraction of methane from Gas hydrates has some

serious implications too.

1. There is about 3000 times more methane present in the hydrates than as in the

atmostphere. So any mismanagement of the same would lead to disaster as methane is

about 11 times more worse than carbon dioxide as a climate warmer.

2. Most of the Gas Hydrates formation are along the coastline. Mining of them would

lead to landslides.

37 | P a g e

11. Gas supplies and prices as of Dec 2007

Source Supply

(mmscmd)

Operators Price ($/mmbtu)

Gujarat 42 ONGC

Gujarat-

Hazira

28 ONGC Price Build up for gas delivered

in Gujarat ( for power and

fertilizer sector)

Rs/Mscm

Rajasthan 0.04 ONGC ONGC producer price 3137

KG basin 4.5 ONGC Consumer price 3200

Tamil

Nadu

2.49 ONGC Uniform transportation charge

along HVJ

calculated@(1,150x10,000)/8500

1352

Assam 0.35 ONGC Royalty for

ONGC@10%producer price

314

Uran 10.1 ONGC Sub total 4866

Cauvery

basin

1.7 ONGC Gujarat sales tax @12% of

subtotal

584

North East 1.81 ONGC

Total

ONGC

53.19 Total 5450

Oil India

Limited

All other consumers to be supplied gas at market

related price subject to a ceiling of ONGC and OIL

pricing to be referred to Tariff Commission Option of

cost plus pricing being considered. Rajastan 0.55 OIL

North-East 4 OIL

Total OIL 4.55

JVs

Ravva-I 1 CAIRN Energy

India Pvt.

Limited

Since July 1st 05’ Gail is paying $3.5/mmbtu.But from

Nov 2006 the prices were increased to

$3.6/mmbtu(includes royalty)

Ravva

Satellite

0.9 CAIRN Energy

India Pvt.

Limited

Ceiling price $3.3/mmbtu for

five years starting from Sept

’01. Revision was made in

Dec ‘06

GAIL signed at

$4.3/mmbtu.The end

consumers price would

be

$4.4/mmbtu+applicable

taxes+transport

charges.The ceiling

price was set at

$4.75/mmbtu

Panna-

Mukta

4.8 Initially held

by ONGC.Now

operators are

British Gas

Exploration

and Production

India

Ltd,RIL,ONGC

PMT sells gas themselves at USD 4.08/mmbtu

(including marketing margin and royalty).Rest is sold

to GAIL at $4.75/mmbtu.

4.46

38 | P a g e

Mid&South

Tapti

6 Initially held

by ONGC.Now

operators are

British Gas

Exploration

and Production

India

Ltd,RIL,ONGC

Lakshmi &

Gauri

1.7

(Lakshmi)&

Gauri 1.27

(Gauri)

CAIRN Energy

India Pvt.

Limited

Contract I –Floor price: $3.06/mmbtu (2.4

mmscmd).Ceiling Price: $ 4.46/mmbtu

Contract II- $3.68/mmbtu (1.27 mmscmd)

Hazira 3.58 Niko

Resources

$4.05/ mmbtu till March 2007 $4.5/mmbtu from

March 2008 to

March

2009.$5/mmbtu

from March 2009

Bheema-1

and North

Surat

0.05

(Bheema)&

0.21 (North

Surat)

Niko

Resources

Contract signed for 1 customer is

$3.65/mmbtu and 2 other

customer is $3.75/mmbtu.All its

other prices are between

$3.45/mmbtu to $3.65/mmbtu till

a new price is negotiated.

KGD6 40 Reliance $4.20/mmbtu as per the formula approved by EGoM.

RNRL and NTPC prices still to be fixed.

PY-1 field 0.05 HOEC $3.70/mmbtu to PNN power project ( Prices approved

by TNEB)

R-LNG

Dahej

17.5 Petronet LNG $3.86 ex-terminal price

R-LNG

Hazira

10.5 Shell India $16mmbtu to GGCL at spot trading

Table.15

39 | P a g e

12. Conclusion

We shall discuss some issues in this concluding part:

• How should Indian government trade off between the business ethics and the national

interest? If 28 mmscmd of Natural Gas gets supplied to RNRL at nearly half the price

as approved by the EGoM, then there would be huge loss in the estimated provided

projected by RIL. Presently only the family conflict has been resolved, but till now

the government interest is not been considered. RIL is now seeking help from the

government to stick to the PSC contract and follow the interest as per the priority list.

• But if RIL complies with the High Court decision, would definitely make the

Investment multiple tranche quite stagnant even at a quite low scale of somewhat

between 1 to 2.5 leading to low government share in the coming future. As per my

analysis, price for NTPC should be around $3.5/ mmbtu which will get followed by

RNRL as per the contracts. Which would somewhat smoothen the losses covered by

RIL and Government. And if necessary, the deficit of NTPC shall be paid by the

government as similar as bonds as NTPC is now paying high. Secondly, a part of the

consumer allocation and price of the power from Dadri power project should be

regulated by the EGoM. That would serve national purpose as well.

• Another issue is that should India develop its Natural Gas Import infrastructure.

Presently the LNG operating terminals are LNG Petronet at Dahej, Gujrat and Shell

Hazira,Gujrat. Dabhol Power project is due to start in coming months. The major

pipelines projects under talks are the IPI (Iran-Pakistan-India) and the TAPI

(Turkmenistan-Afganistan-Pakistan-India) pipelines. But the present situation shows

that both these projects for importing natural gas would not be so beneficial .Recently,

Government of India has started showing unhealthy attitude towards these tow

pipelines as whether there is really a need for such long term import agreements.

• Looking at the future of the Indian Indigenous gas production, immediate investing in

the import/LNG facility would be improper. With RIL started production (the

production is expected to reach 80 mmscmd in coming months if everything is as per

the schedule) and GSPC claiming a huge gas reserve in the KG basin, almost 20Tcf -

the highest in India so far, soon the Indian Gas market will get over supplied. Rather

investment should be more focussed towards the new pipeline and infrastructure. A

way ahead thought will be thinking of liquefaction terminal for LNG export. Fair

amount of investment should be directed towards building of the CGD networks all

along the small and big cities of India.

• CBM should get a main focus and investment. CBM can really change the Indian Gas

market with more and more of competitive pricing. Indian has huge coal reserves,

which, if utilized for the production of the methane gas would only be a bonus.

Presently 4th

CBM rounds for block allocation is under its way.

39 | P a g e

13.References:

Cedigaz (2007): BP statistical review

Infraline Energy Research (2008): Gas Supply and Prices as of Dec 2007

ERM INDIA (2009):GSPC-NIKO: Executive Summary of Drilling & Development of O&G

Wells Hazira Field. Hazira,Surat.

Price Waterhouse Coopers (2008): Oil and Gas, India-Fastest growing free market. New

Delhi, India

CBM India (2008): Analysis and Evaluation of Clean Development Mechanism (CDM)

Prospects for Coal Bed Methane.

Gauri Athanikar(2008):Crisil report on Natural Gas.New delhi,India

http://www.dghindia.org/site/dgh_forthcoming_nelp_round.aspx

http://www.dghindia.org/site/dgh_oil_gas_legislation_rules.aspx

www.petroleum.nic.in

www.thetimesofindia.com

www.indianexpress.com

www.infraline.com

www.bloomberg.com/markets/commodities/energyprices.htm

www.eia.doe.gov/

https://www.vedamsbooks.com/no40225.htm

http://www.dghindia.org/

http://en.wikipedia.org/wiki/Iran%E2%80%93Pakistan%E2%80%93India_gas_pipeline

http://pesd.stanford.edu/publications/india_gas_synth/

http://www.tradeindia.com/exporters-suppliers/c368/natural-gas.html

www.allacademic.com/meta/p252133_index.html

www.methanetomarkets.org/events/2006/oil-gas/.../india_profile.pdf

www.wartsila.com/Wartsila/global/docs/en/.../bright_future.pdf

Annexure

Indian Gas Demand:

2007-08 2008-09 2009-10 2010-11 2011-12

Power

79.70 91.20 102.70 114.20 126.57

Fertilizer

41.02 42.89 55.90 76.26 76.26

City gas

12.02 12.93 13.83 14.80 15.83

Industrial

15.00 16.05 17.17 18.38 19.66

Petrochemicals/Refineries/

Internal uses

25.37 27.17 29.05 31.08 33.25

Sponge iron/steel

6.00 6.42 6.87 7.35 7.86

Total

179.17 196.64 225.52 262.07 279.43

Gas Supply as per table 15. is 146 mmscmd. In short future this will increase by 40 mmscmd

with RIL increasing production. So we can consider 186 mmscmd as the present supply.

Supply Demand Gap:

demand supply gap

2009-10 225.52 186 39.27

2010-11 262.07 186 76.07

2011-12 279.43 219.2 60.23

2013-14

2014-15

In mmscmd

In mmscmd