DEVELOPMENT OF NATURAL GAS MARKET:

WITH REFERENCE TO POWER SECTOR

In india

Abstract

India is the 6th largest producer of electricity after US, China. The electricity produced in
India is produced by using various alternative methods like coal-fired plant, Gas-fired
plants, nuclear plants, hydro etc. According to the predictions India will need to add over

150,000 MW of additional installed power generation capacity by 2025. Gas is predicted

to account for about 20% of generation capacity in 2025, up from its current share of
10%. According to India’s Hydrocarbon Vision 2025 this would translate into a gas
demand for power generation between 56 bcm/y and 76 bcm/y, depending primarily on
gas prices, varying between $ 3 to $ 4 mmbtu. The power sector would account for about
50 percent of total gas consumption. In 2005 all of India’s gas-fired power plants
required 17bcm/y to operate at a plant load factor of 90%. Other gas demand projections,
including those made in the IEA’s World Energy Outlook, are considerably more
conservative. The differences reflect the extent to which price sensitivity of demand and
gas availability were taken into consideration.
The per capita Power consumption in India is increasing manifolds since Independence,
due to various factors like rapid industrialization and factors like Rural electrification
under “Rajiv Gandhi Grameen Vidyutikaran Yojna”. Since independence over 500,000

Villages are electrified but we still have lot to achieve. According to CEA 81% of the
villages have been electrified till 31.05.07.

Coal accounts for over 70% usage as a fuel for power generation. But due to climatic
constraints and Kyoto Protocol considerations other fuel should be considered such as
natural gas that not only have high calorific value but also environment friendly and will
also help in gaining carbon credits, which will be the another source of income for power
generating companies. Huge gas finds have been announced in KG basin and Cauvery
basin. Currently, India meets 70% of its energy requirements through imports. But as
there are new natural gas reserves are found by RIL whose production is expected to start
in mid-2008 which is estimated to produce 80mmscmd and one of the biggest and most
significant discoveries of natural gas by GSPC whose production is expected to start in
2009, which is estimated to produce 65million to 70 million standard cubic meters. It
seems that natural gas will be price at market rates. This has left a cause of concern for
the power ministry. The risen prices are creating conflicts between power producers, Gas
producers and the government. Power producer demanding less prices or high subsidy,
and the natural gas producers are demanding high prices. As stated by the India’s
Ministry of Petroleum that the country will have surplus natural gas in two years and its
rapidly growing economy is likely to be fueled by it after major discoveries by state-run
and private energy companies.

The cost of power from any plant has three major components: (a) capacity cost of plant,
(b) the cost of transmission, including the losses in transmission, and (c) the fuel cost.
The cost of fuel should not be considered in isolation instead overall view should be
taken cost of electricity also include other factors than fuel which should also be
considered like transmission and distribution losses, asset losses, operational losses. In
India, average T & D (Transmission & Distribution) losses; have been officially indicated
as 23 percent of the electricity generated. However, as per sample studies carried out by
independent agencies including TERI, these losses have been estimated to be as high as
50 percent in some states.

TABLE OF CONTENTS

Chapter 1 – Introduction
1.1 Background

1.1.1 History of Natural Gas

1.1.2 Development of Natural Gas Pricing
Methodology in India

1.1.3 Taxes and duties

 1.1.4 Regulated pricing implies a regressive
approach

1.2 Overview

1.3 Purpose of study

1.4 Objective

Chapter 2 – Organization
2.1 History of Indian School of Petroleum
2.2 Technological Development
2.3 Production / Operations Process
2.4 Product Value Chain
2.5 Mission
2.6 Organization Structure
Chapter 3 – Identification of Problem
Chapter 4 – Literature Review
Chapter 5 – Research Methodology
5.1 Data Source
5.2 Sources of error
Chapter 6 – Findings
Chapter 7 – Analysis of the data
Chapter 8 – Conclusion
Bibliography
References
 LIST OF TABLES

Table No. Title Page No.

1. Capacity addition during Pre-NELP and Post-NELP 23

2. Fuel Parity 30
3. Calculation of delivered price of gas 57
4. Rural Electrification. 62
 LIST OF FIGURES

Figure No. Title Page No.

1. Proved reverves at the end of 2006 19

2. World natural gas reserves by region,1980-2007 21
3. World Natural gas consumption by end use sector 22
8. Growth of generation 26
9. Per capita consumption of electricity in India(Kwh/yr) 32
 Chapter 1
INTRODUCTION

1.1 Background

1.1.1 History of Gas in India

Oil and Gas, in India, were first discovered in 1886 by Mr. Goodenough of McKillop
Stewart Company, near Jaypore in Upper Assam. However the find remained non-
commercial as he failed to establish adequate production. In 1889, the Assam Railway
and Trading Company discovered an oil and gas well at Digboi, Upper Assam. The area
was then acquired by Burmah Oil Co. But, during this period, gas was not considered as
viable for commercial production. The associated gas during oil production was vented
through a pipe at the top and set ablaze in order to avoid any potential hazard. Despite
this practice the petroleum companies kept their interest in gas since it was considered as
a ‘faithful companion’ to oil.

Till 1955, the business of exploration of hydrocarbon resources, in India, was largely
carried out by private companies. In 1955, the Government of India, decided to develop
oil and Natural gas as strategic resources through public sector initiative. By late 1955, an
Oil and Natural Gas Directorate was established under the Ministry of Natural Resources
and Scientific Research, constituting of a core of geoscientists from the Geological
Survey of India. In August 1956, the Directorate was raised to a status of ‘commission’.
This gave birth to Oil and Natural Gas Commission (ONGC), now one of the ‘navratna’
companies.

ONGC initially restricted itself only to the inland areas. In October 1959, ONGC was
converted into a statutory body by an act of the Indian Parliament, which enhanced its
powers. In 1961, the Government of India and Burma Oil Company became equal
partners in OIL, which was earlier a joint venture with 1/3rd and 2/3rd shares respectively.
In 1974, ONGC struck huge oil and gas field, now known as Mumbai High. The
commercial production began 1976, however, the associated gas was once again set
ablaze. In 1978, giant South Bassein free gas field was discovered. In 1978, the gas
supply from Bombay offshore was used for power generation and fertilizer manufacture.
During the period 1975-90, though the state owned enterprises kept increasing the reserve
base, yet, the country continued to be one of the underexplored regions. Till 1990, only
40% of India’s estimated gas reserves were explored, hence creating a widening gap
between domestic production and demand. Private sector investment was sought in E&P
sector by offering exploration acreage through production sharing agreements with
Government of India. In 1994, the Government awarded first of the fields to be operated
through joint venture between state enterprises and private companies.
Still, by 1998, the exploration efforts were low at 12 per 10000 sq km of exploratory
wells compared to a world average of 100 (source: GAIL – Infraline Natural Gas in
India: A Reference Book, p73). Of the 26 sedimentary basins only six were explored
resulting in huge gap between potential and existing reserves.
In 1999, the Government of India announced New Exploration Licensing Policy (NELP),
with objective of invigorating E&P activities by providing attractive incentives and level
playing fields to the new entrants, including foreign companies. Since then six rounds of
NELP have already been completed and the VIIth round is about to be announced. In the
six years of the first five rounds of NELP a significant capacity addition has been made
as shown in the table below:

Table 1 Capacity addition during Pre-NELP and Post-NELP

S.No. Indicator Pre-NELP (1993- NELP-I,II,III,IV,V
2006) (2000-06)
1. 2D Seismic Survey (LKM) 24,091 1,09,305
2. 3D Seismic Survey (SKM) 5,304 67,773
3. Exploratory Wells (Nos.) 167 93
4. PSC Blocks 28 138
5. No. of Discoveries (upto 25 40
15.04.07)
6. Investment made on US$781.65 mn US$1451.18 mn
Exploration

1.1.2 Development of Natural Gas Pricing Methodology in India

The pricing approach for Natural Gas in India has seen several variants. The approach
has been guided by the belief to secure the interest of all stakeholders equitably.
Understanding pretty well that market mechanism is the best allocator of resources, the
government had to deviate from it in order to provide the humane touch. The tender
Indian economy of those times, when the first gas supplies commenced in 1959, may not
have withstood the pressures of market forces. Till 1970, the prices were determined by
Government Committees, which ranged between Rs 9 - 50/tcm. In 1970, ONGC
negotiated prices with different consumer segments reaching around Rs 115/tcm. During
1974 to 1977, the producers determined the prices depending upon the opportunity cost to
the consumer that included thermal equivalence of the substitute fuels. The price ranged
between Rs 210 – 350/tcm. During the period 1978 – 82, the price for power sector
ranged between Rs 1000 – 2600/tcm and for fertilizer sector it ranged between Rs 600 –
3500/tcm.

In 1986, the government decided to charge uniform price on a year – to – year basis
determined through cost-plus methodology. The price of natural gas was fixed at Rs
1400/tcm w.e.f. 30.01.1987, however price for North-East region was subsidized to Rs
1000/tcm. Subsequently, under the recommendation of Kelkar Committee, the price was
revised to Rs 1550/tcm w.e.f. 01.01.1992, with provision to raise it by Rs 100/tcm p.a.
upto Rs 1850/tcm by 1995.

In Jan 1995, Sankar Committee was constituted to review the gas pricing. Its
recommendations, though not intended, resulted in shifting the pricing approach from
cost-plus to import parity. This was for the first time that consumers of natural gas in
India got exposed to global dynamics. The committee had intended to determine the
price based on long run average cost, calculated on basis of long term business plans of
ONGC. Through this formula the committee arrived at a price of Rs 1854/tcm. The
Committee eventually recommended a price of Rs 1800/tcm, giving due consideration to
findings of Expert Committee, which based the pricing on costs of production on that
day. However, new dimensions emerged in form of 1) higher price having been offered to
joint venture licenses at Ravva and Panna-Mukta-Tapti fields, and 2) likely import of
large quantities LNG by end of next five years. Keeping all these developments in view,
Sankar Committee recommended that the consumer price should keep increasing at rate
of Rs 200 to Rs 250 per year. Government accepted these numbers but related it to the
price parity with the cheapest alternative fuel oil. The pricing policy was announced as
gas prices being a percentage of the fuel oil parity price in different years. Though the
prices were same as proposed by Sankar Committee, but, the principle had changed to
that of import pricing.The fuel oil basket was computed as average of four fuel oils, viz.,
Cargoes FOB, Med basis, Italy (1% sulphur); Cargoes CIF, NEW basis ARA (1%
Sulphur); Singapore, FOB, HSFO 180 cst (3.5% surplus); and Arab gulf, FOB, HSFO,
180 cst (3.5%. sulphur)) with progressively .increased fuel oil parity as given below.

Table 2 Fuel Parity

Year % of Fuel Oil Parity (Other

than N.E.)
1997-98 55%
1998-99 65%
1999-2000 75%

This price was, however, subject to the range Rs 2150 – 2850/tcm. The price was
intended to be reviewed after three years with objective of achieving full Fuel Oil Parity
over the years 2000-01 and 2001-02. But, it could not be achieved and the gas prices
remained stuck at the ceiling of Rs 2850/tcm that was near 34% of then Fuel Oil Price.

The gas prices did get stuck at Rs 2850/tcm, but, the gas market was becoming quite
complex for Government’s comfort. As the market increased the diversity among the
players increased too. Amongst the producers there were some from public sector with
nominated gas fields, some from public private joint ventures and some who imported the
gas in liquefied form. Among the consumers were the fertilizer industry, power industry,
sponge iron and others. Due to diverse backgrounds and objectives the interests too
became diverse. A deft balancing in the pricing of natural gas was required to be done by
the Government. On July 23, 2003, a Group of Ministers, comprising of representatives
from user and producer Ministries, met and recommended that the price of gas that had
remained static since Oct 1999 should be raised from Rs 2850/tcm to Rs 3200/tcm. Some
of the other recommendations made by the Group included the following:

1. Appointment of a Tariff Committee to study the cost structure of ONGC and OIL
and suggest a reasonable price, within six months, for the period till complete
deregulation of the gas prices could be achieved.
 2. Gas produced by the JV of Panna-Mukta and Tapti, around 8tcm, to be sold at
market-determined price. 1 tcm gas from Ravva JV to be taken by GAIL and the
higher cost to be adjusted as per the existing arrangements.

3. In order to provide a level playing field to the public sector companies the gas
produced by them (ONGC and OIL) from the new oil fields to be sold as per the
NELP.

4. Price for the North-East region, which was then at 60% of the price for others,
should be brought to 60% of the new price i.e. Rs 3200/tcm.

A new gas pricing order, dated 26.06.05, was issued by the government revising the price
to Rs 3200/tcm for the following categories of consumers:

5. Power sector consumers.

6. Fertilizers sector consumers.

7. Consumers covered under court orders.

8. Consumers having allocations of less than 0.05 tcm.

9. It was further decided that all the APM gas, estimated to be around 55 tcm, will
be made available to these categories only. The price for small consumers and the
transport sector would be increased over the next 3 to 5 years to the level of
market price. With effect from 06.06.2006, the price of as for small consumers
and the transport sector was increased to Rs 3840/ tcm.

10. It was decided that price for all other than the ones mentioned in above categories
would be determined as per the market mechanism.

1.1.3 Taxes and Duties

In order to reach the Burner Tip/ Delivered Price, we add the royalty, taxes and duties
etc., which are payable by the consumer to the price calculated as per the above
arrangement. The royalty, for the privately operated fields, is fixed on the wellhead prices
as negotiated amongst the players, and presently it is 10% of the wellhead price. For
ONGC gas, it is 0.18$/MMBtu, 10% of the ceiling price of 1.80$/MMBtu. Natural gas,
being mineral, does not attract any excise duty. Sales tax is applicable depending upon
whether the sale of the gas is within the state or interstate. In case of within the state sale
the tax is as per the state rate, which may vary between 0 to 22%, and in case the sale is
interstate a central rate of 4% would be applicable.

Table 3 Calculation of delivered price of gas

Consumer Price (say) $4.33 MMBtu
Royalty $0.433
Transportation tariff* $0.5
Sales Tax ( say 10%) 0.54
Burner Tip/ Delivered Price $5.8 MMBtu
*It may be noted that GAIL is not permitted to make any margin on merchant sales, it is
entitled just to the investment on the pipeline, which is computed as follows:

Transmission charges to GAIL along HBJ pipeline Rs/tcm (Oct 1997) = 1,150 X calorific
value of gas supplied by GAIL to consumer/8,500kcal per cubic metre.

The consumer price these days is being determined by market mechanism. Earlier, let us
say for the period Oct 97 – March 98, when the price of gas had to have import price
parity (55% of the fuel basket), the consumer price was computed as follows:

Consumer price at landfall = Basket of fuel price X 0.55 X Rs/US$ Exchange Rate X
calorific value of gas/10,000Kcal

In this analysis we will bypass the micro issues and deal with macro concern of what
actually should be the approach while pricing the gas from NELP fields.

1.1.4 Regulated pricing implies a regressive approach

The Government set up a committee, referred to as ‘R’ (reform) Group, to deliberate on
the liberalization of the Petroleum Sector. It is chaired by the secretary Petroleum, and
comprises Indian Industry’s elite, including Mukesh Ambani, Aditya Birla, and Chairmen
of the major PSUs –IOC, ONGC and GAIL. The terms of reference of the committee are
quite clear – a) unshackle the sector from government control b) Competition should be
encouraged and the bureaucracy should be replaced by market as core determinant of
prices and resource allocation c) The committee should recommend a set actions in order
to achieve the objectives, but, in consideration with the political constraints. The report
was submitted to the Government in 1996 and proposed three phased deregulation – First,
allowing private participation in exploration and production. Second, limits on
investment in refining and distribution should be removed. Finally, private companies
should be permitted to market transportation fuels. In the final phase, the administered
pricing mechanism should be replaced by market driven pricing. It was proposed that the
three phases should be implemented by April 1, 2002. The bulk of recommendations
were implemented on April 1, 2002. The private sector has access to E&P, refining and
marketing. The APM has been abolished and the PSUs can operate independent of the
bureaucratic control. But, the present natural gas pricing imbroglio seems to be indicating
something else. There are allegations of monopolistic behavior on the part of RIL,
implying that the competition is minimal. There are suggestions that the Committee of
Secretaries should determine the price, rendering all the efforts to move towards market
driven prices as futile. The PMO suggests that power generation should largely be coal
based and natural gas be left for the interest of the fertilizer industry. Is this the way we
wanted the ‘R’ Group to create an environment of market based resource allocation?
Looking at the present situation it seems that the recommendations of the group would
largely be bypassed. But, such a move would certainly erode the sanctity of the nation’s
decision making institutions. After all there has been involvement of the executive and
the legislative arms of the government. It has been scrutinized by the parliament and
endorsed by the Union Cabinet. Extensive debates preceded the pronouncements. (FE
June 16, 2007, “Re-regulation of the Oil Sector” by Vikram Singh Mehta) Significant
investments from international and domestic players were planned on basis of these
pronouncements. Success of NELP can largely be attributed to the several fiscal and
commercial incentives offered to the contractors. One of the incentives has been to sell
the gas at market determined prices. Now that investments have come a debate has been
initiated on whether market determined prices or not! Is there any vision to our
development? In upstream business the inputs are deterministic while the output is
probabilistic. In such a situation it may become quite tedious to compute a reasonable
return. Hence, the traditional models of cost-plus pricing would not be able to do justice.
In a month’s time NELP VII is to be announced. Any deviation from market determined
pricing may lead to dis-interest on the part of the potential contractors and probably
things would become simpler since no gas implies no pricing dilemma.
There are arguments that by asking for regulated prices we are not retracting from what
we promised. Article 21.1 of the Production Sharing Contract is often referred to in
defense of moving away from market determined pricing. The Article states that all
proposals by the contractor related to discovery and production of natural gas should be
in context of the government’s policy for utilization of natural gas. One look at the
historical development in the pricing of natural gas shows that there is a gradual move
towards achieving market based price. Let us not try to take refuge behind self-
interpretations of government’s policy.
The reluctance to go ahead with market-determined prices could be due to the fear of
high prices eroding the vote bank (remember the terms of reference – consideration about
political constraints). We have a history in price of onions felling the government. But,
this tendency seems more of a political myopia than a visionary move. A recent article in
Financial Express, dated July 5, 2007 “Cost of Political Myopia” by Arvind Sehgal tries
to estimate the price India has been paying with our ‘one slow step forward only to
retrace and go back two’ approach. He makes somewhat informed estimates of losses
incurred in various industries:

Retail
At about 4% net higher prices being paid by the consumers on their overall spending
through unorganized retail channels, the additional amount spent comes out to about Rs
60,000 cr in 2007. Add to it the supply-side in-efficiency losses to the tune of Rs 20,000
cr. Potential for taxation yet not estimated.

Housing:
Near 16 million rentable houses can come to the market provided the present rent control
laws are replaced by modern ones that are equitable to both the landlord as well as the
tenant. Commercial rents have gone through the roof, yet, Indian government has done
nothing to bring additional land in the market, update regulations pertaining to land use
and the allowed floor area ratio (FAR). Indian businesses may have saved near Rs 4,000
cr, in the last one year, in rental values in the top eight urban cities provided FAR norms
were made even partly comparable to other land deficient cities such as Hong Kong and
Singapore. Our economy is getting increasingly services-oriented resulting in demand for
office space outpacing the GDP growth rate. The financial impact on Indian businesses
would be come further acute even as the government continues to turn blind eye this
issue.

Aviation:
“The recent spat between a West Asian airline and the state-owned carrier once again
highlights the misguided notion that there must be a state carrier and its monopoly has to
be protected, no matter how shoddy its performance and services are, and how much it
costs the average Indian citizen in terms of higher fares being paid out each time she has
tot ravel out of India. The estimate of losses to this account could be near Rs 5000 cr pa.

Education:
Over 120,000 students Indian students study abroad, since they are unable to get
admission in decent colleges despite achieving 80 -90% marks. The expenditure on
studying abroad would be over Rs 16,000 cr, which is expected to increase year on year
by 15% and hence we might result in spending more on educating our children abroad
than the entire budget of the Government of India on Higher Education.
Adding the loss of the four sectors together it amounts to near Rs 1,05,000 crore per
annum.
It is not that the approach has not affected the Hydrocarbons sector. The government’s
infatuation with imposing pricing controls has left the oil companies bleeding. As per a
report in Business Standard, dated July 5, 2007, the oil marketing companies could see a
sharp rise in the subsidy, to the extent of 240% this year. Three marketing companies –
IOC, BPCL and HPCL will have to foot a subsidy of Rs 17000 cr this year as against Rs
5000 cr last year. The under-recovery would be to the extent of Rs 55,000 cr. In the
previous financial year, the oil marketing companies bore a loss of Rs 5000 cr and total
under-recoveries of around Rs 49,000 cr. Further, the deviation from market principles
has diluted the efficiency gains from competition, and also undermined the capability of
the companies to fund R&D for clean technology and renewables. We find that the
international oil companies spend the biggest amounts towards development of clean
technology and renewable, but, Indian companies do not, may be, due to the strained
balance sheets.
Another development that needs mentioning is the tendency of the private players to look
for foreign markets in case domestic market becomes un-attractive. Reliance, for
example, has gained export oriented unit (EOU) status for its refineries, enabling them to
generate more revenues from exports than from domestic sales. It makes good economic
sense for Reliance since it can capture relatively high international margins, and by
minimizing domestic sales it is able to mitigate the losses incurred in the domestic
market. Adding to it the duty concessions it gets entitled to, indeed, benefits it a lot. But,
it may not benefit the country, since this tendency can compel us to import relatively
more expensive petroleum products.

Have subsidies helped?

No doubt the higher prices would lead to higher cost of production for fertilizer and
power companies. Talking about the fertilizer sector, as reported by Economic Times
(07.07.07) the fertilizer subsidy bill is set to reach Rs 50,000 cr during 2007-08. Are gas
prices responsible for this? No, it is the other inefficiencies of this sector which needs to
be curbed. Seeking solution in lower prices of natural gas leads to permeating of the
inefficiencies of one sector into other. Moreover if subsidies like this were to offer
solution we would have overcome poverty long back. An article by Arvind Virmani in
Business Standard dated 29.06.07, mentions the case of year 1999 – 2000. “The total
subsidies provided by the central government were Rs 25,690 cr, of which 22,680 cr were
for food and fertilizer. During the same period the central and the state governments
together spent another 28,080 cr on ‘Rural development’, ‘Welfare of SC, ST and OBCs’
and ‘Social Security and Welfare’. Either of these was sufficient to bring all the poor to
the consumption level of the person/household at 30% level. Given that poverty was
between 26.1% and 28.6% either of these if transferred directly to the poor and
disadvantaged would have eliminated poverty. Together these subsidies and poverty
alleviation expenditures (Rs 53,770 crores) would have been sufficient to eliminate
poverty in 1999-2000, even if administrative costs and leakages used up half the
allocation. It can be argued that most efficient social welfare policy is a direct transfer of
income to the poor through a negative income tax.”
Ironically, the subsidized price of urea has prompted its overuse and hence making an
adverse impact on long term productivity of the soil. Productivity loss has become one of
the major banes for the farm sector today.
In case of Power Sector, too, it needs to first mend its own house before claiming a share
from the riches of others. Economic Times has reported in its issue of 29.06.07, “About
Rs 2,70,000 cr, one-third of the total investment of Rs 8,10,000 crores earmarked for the
power sector in the 11th Plan, will go down the drain, if immediate and effective steps are
not taken to check transmission and distribution losses, a survey has said. India would not
be able to come out of the power crisis if the T&D losses of about 30-40% are not
controlled as these losses would result in deteriorating financial health of the power
utilities, according to Assocham Eco Pulse (AEP) study on mounting T&D losses.”
Instead spending time and energy on building case for getting natural gas at lower prices,
it would benefit the power ministry more if it focuses on plugging the T&D losses. One
can draw significant learning from the coal sector which provides the main fuel for the
power sector. The coal prices have not been revised for few years now, which have quite
adversely affected the production and modernization of the processes. There has been no
attempt to economize on use of coal despite the fact that we might run out of it in next 50
years.

1.2 Overview
India being the sixth largest producer of electricity and the demand for electricity is
increasing continuously. The growth in generation during 2002-03, 03-04, 04-05 and 05-
06 has been 3.2%, 5.1%, 5.2% and 5.2% respectively. In the year 2006-07(up to Dec-
2006) a growth rate of 7.5 % has been recorded. During the 10th plan the Compounded
Annual Growth Rate (CAGR) of generation is expected to be about 5.1%. However, if
adequate gas would have been available for the existing and new gas based plants
commissioned during 10th plan than higher growth could have been achieved.
The targeted addition capacity of 41, 110 MW comprising 14, 393 MW hydro, 25, 417
MW thermal and 1, 300 MW nuclear was fixed for the 10th Plan.

Planning Commission issued the Integrated Energy Policy (IEP), during the 11th Plan
GDP growth rates of 8%-9% have been projected. Only 2,114 MW gas based capacity
has been planned for 11th Plan where gas supply has already been tied up. This does not
include NTPC’s gas based projects at Kawas and Gandhar, totalling to 2,600 MW, for
which NTPC says that it has the gas supply contract but the matter is sub-judice.
However more gas based projects could be taken up for construction as and when there is
more clarity about availability and price of gas.

India is a fast growing economy and it expected to add 100,000 MW power generating
capacity between 2002-2012. The use of coal has a limitations in terms of environmental
considerations, quality and supply constraints, gas is expected to play an increasingly
important role in India’s power sector.
The Indian economy grew by 9.4 % in 2006 and is expected to grow by more than 8 % in
2007. The power ministry says that to keep the economy growing at around 9.5%, the
country’s power generation will have to grow at a similar pace.
India’s predicted strong economic growth the country will need to add over 150,000 MW
of additional installed power generation capacity by 2025. Gas has current share of 10%
and it is predicted to account for about 20% of generation capacity in that year.
According to India’s Hydrocarbon Vision 2025 this would translate into a gas demand for
power generation between 56 bcm/y and 76 bcm/y depending primarily on gas prices
ranging between $ 3 to $ 4 mmbtu. The power sector would account for about 50 percent
of total gas consumption.

India’s gas-fired power plants required 17bcm/y to operate at a plant load factor of 90%
in 2005. The first major policy paper on the future role of gas in India’s economy is
issued in Hydrocarbon Vision 2025 in the year 2000. The Vision identified natural gas as
the fuel of choice for the Indian economy and projects future gas demand in the economy
broken down by different demand drivers.

1.2 Purpose of study

As we know that India is the 6th largest producer of electricity the demand of power are
rapidly increasing. The main source of power generation are :
Thermal power plants
The problem with coal fired power plants is low calorific value of coal, high ash content
and its hazard to the environment. Moreover, problems related to transportation of coal,
rate of production and its supply and quality. There are continuous reports on coal supply
shortages especially in monsoon season.
Hydroelectric power plants
Although hydroelectric power is admittedly one of the cleanest and most
environmentally-friendly sources of energy, it too has the capability to alter or damage its
surroundings. Among the main problems that have been demonstrated by hydroelectric
power is significant change in water quality. Because of the nature of hydroelectric
systems, the water often takes on a higher temperature, loses oxygen content, experiences
siltation, and gains in phosphorus and nitrogen content.
Another major problem is the obstruction of the river for aquatic life. Salmon, which
migrate upstream to spawn every year, are especially impacted by hydroelectric dams.
Nuclear power plants
The nuclear power plants are clean when it comes to electricity generation. But the
problems with them are mining and purifying uranium has not been a very clean process,
spent fuel from nuclear power plants is toxic for centuries, as yet there is no safe,
permanent storage facility for it. Transportation nuclear fuel to and from plants is very
risky and the gestation period of these plants is very high.
Solar power plants
One of the big problems with solar power has been that it costs more than electricity
generated by conventional means. But some experts think that, under certain
circumstances, the premium for solar power can be erased, without subsidies or dramatic
technical breakthroughs.

Wind turbines
The main disadvantage regarding wind power is down to the winds unreliability factor. In
many areas, the winds strength is too low to support a wind turbine or wind farm, and this
is where the use of solar power or geothermal power are great alternatives. A wind
turbine can only support a specific population. Wind turbines aren't like power stations,
where you can just burn a bit more fuel to generate more energy when you need it. Wind
turbine construction can last over a year, be very expensive and costly to the surrounding
nature environment during the build process.

Natural gas is one of the cleanest, safest, and most useful of all energy sources, it burns
cleaner than other fossil fuels. Though there is volatility in the price of natural gas and
uncertainty in the supply but even then we cannot ignore the benefits of using natural gas.
The calorific value of natural gas is higher than coal and it do not leave ash, and most
importantly it do not generate green house gases. The power generation companies who
shift to gas fired power plants can also earn carbon credits. So with the help of this study
I will be looking for the potential of natural gas for power generation.

1.3 Objective

1. To understand the world natural gas scenario.

2. To understand the Indian natural gas scenario.
3. To understand the fuel requirement by power sector.
4. To study and analyze the challenges and opportunities of Gas fired power stations.

Chapter 2
ORGANIZATION

2.1 History

The Indian School of Petroleum was set up in 2001. It is a Unit of M-Power Energy
India (P) LTD, has over the years established itself as a premier domain specific
institution providing state of the art services in the areas of Consulting, Funded Research,
Projects, and Competency Enhancement Programs and Outsourced Project Services to
the Oil & Gas Industry.
Another important achievement made by ISP when it was selected as the Indian Partner
of Energy Institute UK, and is credited with setting up India's First Energy Specific
University the University of Petroleum & Energy Studies, recognized by the University
Grants Commission of India.
Other credit to Indian School of Petroleum is that it has trained over 9,000 Industry
Professionals, and has executed with excellence, Consultancy Assignments, &
Outsourced Projects through hands on application.Having recourse to over 150 highly
skilled Energy Domain Experts , Indian School of Petroleum is well placed to offer state
of the art services across the hydrocarbon value chain
Comprehensively covering all major sectors of the Hydrocarbon Sector, The Indian
School of Petroleum provides a platform to prepare professionals with broad based
industry knowledge and provides training with extensive hands on experience.
The Indian School of Petroleum has on its Advisory Board eminent professionals from
the energy domain. The Board headed by Mr. T.N.R Rao, former Secretary, Ministry of
Petroleum & Natural Gas provides strategic advice and guidance.
The affairs of the Indian School of Petroleum are overseen by a professional Board of
Governors chaired by Mr. B.D.Gupta former President JM Morgan Stanley, Director
Finance Indian Oil Corporation and currently Advisor Finance ONGC Ltd. Other
members of the Board are drawn from the cross section of the Indian Oil & Gas sector
and has representation of eminent professionals drawn from , Reliance, ONGC, GAIL,
BPCL, HPCL, ESSAR OIL, PETRONET LNG, INDIAN OIL and others.

2.2 Technological Development

ISP’S Core Competencies

• The Exhaustive Domain Expertise in Oil & Gas Value Chain.

• Competency Enhancement.
• Consultancy Services in various facets of the hydrocarbon value chain.
 • Implementation of Best Practices through Audits leading to ISP Certification.
• Process Management (Mapping, Re-engineering, Training, Improvement).
• Project Planning & Implementation.

2.3 Production/Operations process

2.3.1 Consulting Services
ISP has well-developed competencies in technical consulting, advisory & training
services in various facets of the hydrocarbon value chain viz Upstream, Refining, &
Petrochemical Operations, Retailing, Supply Chain Management, & Support and
Auxiliary Services.
ISP can value add with its extensive domain knowledge to:
• Benchmark current performance
• Identify strengths & opportunities for improvement and prioritize initiatives
• Process Mapping
• Planning & Implementation
• Audit & Certification.

2.3.2 Competency Enhancement and Training

ISP’s tailored made programs cover the following areas

• The Hydrocarbon Value Chain
• Exploration & Production
• Refining Technology & Operations
• Gas (LNG,PNG,CNG) Technology, Engineering, Economics
• Retailing and Channel Management
• Supply Chain Management
• Petrochemicals
• Project Management
• Health Safety Security & Environment
• Automation & IT Applications
2.3.3 Retail Practice of ISP

ISP has a well developed practice in retail and has been very active in this sector.
ISP’s Retail Practice covers:
• Execution of Technical Advisory & Retail Plan implementation Services on
turnkey basis.
• Market Research
• Surveillance Audit of Retail outlets
• Development of Benchmarks and Best Practices for Operations, Maintenance,
HSE and Quality Control at product terminals
• Retail Visual Identity development and brand perception
• Studies on Highway Automotive Fuel Consumption & Future scenario
• Study on Regulatory Compliance for setting up retail chain in Oil & Gas
• BPO Services through deployment of ISP Manpower.

2.3.4 COMPETENCY ENHANCEMENT & TRAINING

ISP Competency enhancement program’s provide clients the opportunity to achieve

Strategic alignment, post better results and build the bottom line, through preparing their
core manpower resources for added responsibilities
ISP offers confidential, customized program solutions to meet the training challenges of
your workforce
What ISP offer is :
• Unmatched Course Development Expertise
• Innovative Training Formats
• Industry Expertise
• Global Reach
Focus on Learning Partnerships: ISP focuses on long-term needs, and consistently
delivers – forging lasting learning alliances

2.4 Product Value Chain

 • The Hydrocarbon Value Chain.
• Exploration & Production.
• Refining Technology & Operations.
• Gas (LNG, PNG, CNG)-Technology, Engineering Economics.
• Retail Engineering & Channel Management.
• Supply Chain Management.
• Pipeline Engineering & Systems.
• Petrochemicals.
• Project Management.
• Health, Safety, Security & Environment.
• Automation & Information Technology applications.

2.5 Mission
To established itself as a premier domain specific institution providing state of the art
services in the areas of Consulting, Funded Research, Projects, and Competency
Enhancement Programs and Outsourced Project Services to the Oil & Gas Industry.

2.6 Organization Structure

The institute has on its advisory board eminent professional and accomplished experts
from diverse areas of the petroleum operations. The board headed by Mr. T.N.R. Rao,
former secretary, Ministry of Petroleum and Natural Gas, Government of India, provides
strategic advice and guidance to the management team of ISP. The affairs of the school
are overseen by the Board of Governors which is chaired by Mr. B.D. Gupta, former
President, JM Morgan Stanley, Director(Finance), Indian Oil Corporation, currently
Advisor(Finance), ONGC ltd. And has practicing CEOs and Managing Directors of the
Oil Companies.
The academic affairs are supervised by the Board of Studies, which is chaired by Dr. S.J.
Chopra, former Executive Director, Centre for High Technology, Ministry of Petroleum,
Government of India.
Dr. Parag Diwan, Director-Academic Affairs, Indian School of Petroleum provides
intellectual guidance to the management team of the school.
Mr. Sanjay Kaul, Director, is leading the school. The school has already trained various
professionals for certification, in-company and open-house programmers. Mr. Pummy
Chicker has also played a very active and important role as a former Vice President in the
institute.

Chapter 3
Identification of Problem

Earlier almost all the electricity was generated by using coal but slowly and gradually
with the development of technology and entrance of private players new fuel options
were invented like nuclear, gas fired plants, hydro power plants, but still the share of coal
is highest. With the continuous increase in electricity demand and the hazards of using
coal as a fuel give rise to the debate of using other fuels than coal for generating
electricity.
The environment friendliness and high calorific value makes the natural gas a strong
contender for power generation. As it seems that the prices of natural gas will be market
driven. This left a cause of concern for the power ministry about the subsidy and the price
at which the gas will be available to them.
So the problem which is going to be studied is “The potential and challenges of gas
fired power plants”

CHAPTER 4
LITERATURE REVIEW

I studied various research papers and newspaper articles to know about the topic given to
me:

The research paper titled “Gas to Power- India” by Dagmar Graczyk, Manager for
South Asia, International Energy Agency (IEA), Paris, France published by IGU
(International gas union). In that paper they focus on the India’s potential for gas fired
power generation. The paper shows the analysis made by the ADB which projected that
at a price of $3.5 bcm/y the capacity addition made by power generation will be 41100
MW by the year 2012.
The paper shows another study made in the hydrocarbon vision 2025 that at a price of $ 3
the demand for gas by the power sector will be 61 bcm/y by 2012 and 76 bcm/y by 2025.
At a price of $ 4 the demand will be 33 bcm/y by 2012 and 56 bcm/y by 2025.
It concluded by saying that the potential for use of gas in India’s power production is
large. India has one of the strongest economic growth rates in the world and has sufficient
potential to maintain this high growth rate over a sustained period of time. The power
sector will be growing in tandem with the economy. As the large discoveries have been
made in India the scope for gas fired plants are large.

Another reports titled “International energy outlook 2007” by EIA, U.S. department of
energy and “BP Statistical review of world energy 2007” by British petroleum. These
reports provide high-quality, objective and globally consistent data on world energy
markets. The Review is one of the most widely respected and authoritative publications
in the field of energy economics. The review focuses on world energy data, from that
report I came to know about the world natural gas reserves, production, and consumption.
They also talks about the consumption of natural gas by various sectors.

The monthly reports published by CEA (central electricity authority) which shows all
India installed generating capacity, growth in installed capacity, actual power position,
targeted generation capacity etc.

The 10th and 11th plan published by Planning commission of India. The plans shows the
demand projection, targets, fuel requirements, supply position, growth in generation,
initiatives made for power sector.
Various newspaper articles that give me insight about the price of natural gas at which it
will be available for the power generation.

The research paper titled “Gas to Power- India” by Dagmar Graczyk, Manager for
South Asia, International Energy Agency (IEA), Paris, France published by IGU
(International gas union). In that paper they focus on the India’s potential for gas fired
power generation. The paper shows the analysis made by the ADB which projected that
at a price of $3.5 bcm/y the capacity addition made by power generation will be 41100
MW by the year 2012.
The paper shows another study made in the hydrocarbon vision 2025 that at a price of $ 3
the demand for gas by the power sector will be 61 bcm/y by 2012 and 76 bcm/y by 2025.
At a price of $ 4 the demand will be 33 bcm/y by 2012 and 56 bcm/y by 2025.
It concluded by saying that the potential for use of gas in India’s power production is
large. India has one of the strongest economic growth rates in the world and has sufficient
potential to maintain this high growth rate over a sustained period of time. The power
sector will be growing in tandem with the economy. As the large discoveries have been
made in India the scope for gas fired plants are large.

Another reports titled “International energy outlook 2007” by EIA, U.S. department of
energy and “BP Statistical review of world energy 2007” by British petroleum. These
reports provide high-quality, objective and globally consistent data on world energy
markets. The Review is one of the most widely respected and authoritative publications
in the field of energy economics. The review focuses on world energy data, from that
report I came to know about the world natural gas reserves, production, and consumption.
They also talks about the consumption of natural gas by various sectors.

The monthly reports published by CEA (central electricity authority) which shows all
India installed generating capacity, growth in installed capacity, actual power position,
targeted generation capacity etc.

The 10th and 11th plan published by Planning commission of India. The plans shows the
demand projection, targets, fuel requirements, supply position, growth in generation,
initiatives made for power sector.

Various newspaper articles that give me insight about the price of natural gas at which it
will be available for the power generation.
RIL Gas find
Present consumption volume
RIL pricing
Controversy
Still companies line-up for RIL gas

The article titled “ RIL`s gas pricing formula draws flak from users” by Anupama
Airy in the Financial express dated 11 June, 2007 focuses on the criticism from major
user ministries i.e power and fertilizer. The criticism was on the bidding process adopted
by RIL to arrive at market determine price of $ 4.79 per mmbtu. RIL invited five power
and five fertilizer companies for bidding. Based on these bids the price quotes range
between $ 4.64 and $ 4.86 per mmbtu. RIL`s formula is clearly meant to maximize its
selling price for gas, which will be to the disadvantage of both power and fertilizer
sectors.

The article titled “Going up in gas” by “Economic times” dated 12 June, 2007 stated the
problems that are facing by RIL in the price discovery for the gas struck by it in KG
basin. RIL initiated a price discovery by invited bids from potential users for the gas. The
discovered price, range from $ 4.30-$ 4.37 per mmbtu. Two problems were encountered
by RIL, one is the ongoing dispute between RIL and RRNL. The second relates to
whether the price discovery process has been significantly transparent and broad based.

The article titled “Govt. wants market driven prices for RIL gas” by Rakteem Katakey
in Business standard dated 23 June, 2007. The article tells about the Government
intention that RIL gas will be sold at market driven price rather than lowered
administered price. If the gas will be sold at market driven price i.e $ 4.79 mmbtu the
share of profit that the government gets will be much higher.

Article titled “Gas threat to real economy” by Piyush Pandey in Economic Times on 4
July, 2007. The article states that Natural Gas is one commodity that might help India’s
public and private corporations produce allegedly super normal profits in the coming
years. If the gas will not be available at the affordable price than the government’s
ambitious target to provide affordable power for all by 2012 will be thwarted. RIL’s KG
D6 gas field has one of the highest internal rate of return among ongoing projects
globally and would be the company’s major revenue earner in future.
The two major consumers of gas i.e power and fertilizers are regulated sectors with their
end products being sold at regulated prices. In fact the power sector earns only 14%
returns.
The government, through its Common Minimum Programme (CMP) and National
Electricity policy (NEP), has envisaged capacity addition to the tune of 100, 000 MW
during the Xth and XIth five year plans. Capacity addition to tune of 80, 000 MW during
the XIth plan looks critical as government has added only 21, 180 MW during the Xth plan
against target of 41, 110 MW. RIL has sought a price of $ 4.67 per mmbtu for power
plants. Gas at $ 4.67 per mmbtu would push the electricity tariff to over Rs 5 per unit. In
the past also government has re-negotiated power purchase agreement (PPA) to save
consumers from higher cost of power. So, there is a case here for changing PSC to limit
the gas price and returns to the contractors. If affordable gas will be available more than,
16000 MW of gas based plants can be added. Power sector indicate that for every dollar
increase in price of gas from $2.34 per mmbtu, the governments petroleum profit will go
up by Rs 17, 100 crore.

Article titled “Petromin clears RIL`s D-6 gas price, with alteration” by Anupama Airy
in Financial Express on 9 July, 2007. The petroleum ministry, bring down the base price
of gas to $ 4-$4.10 from $ 4.33 per mmbtu. The main change relates to dropping the
built-in exchange rate parity in the RIL pricing formula.

Article titled “Gas biggies present formulae to CoS” by the bureau of Economic Times
on 11 July, 2007. RIL and other big gas producer like ONGC, headed by Mr. Mukesh
Ambani made presentations to the committee of secretaries (CoS). RIL has held the
company had arrived at the price of $ 4.33 per mmbtu for KG-D6 gas in transport
manner. The company claimed at apart from high revenues upsides (as profit petroleum)
for the government, gas sold at a price would also bring down fertilizer subsidy by Rs
6400 crores. According to ONGC, gas from the fields is selling at $ 4.75 mmbtu.

The article titled “ONGC mulls 2700 MW power generation” by Rakteem Katakey in
Business standard dated 13 July, 2007 which tells that ONGC is going to add 2700 MW
of gas based generation capacity, for both captive and commercial use, through three
plants.

Article titled “KG basin price row may end up with Mansingh” by Rajeev Jayaswal in
Economic times on 27 July, 2007. The article tells that the controversy over the pricing of
natural gas from KG basin will end up with the newly appointed downstream regulator, L
Mansingh.

Article titled “Imports cheaper at $ 5 per mmbtu gas: Fertilizer department” by

Rakteem Katakey in Business standard on 31 July, 2007. The department of fertilizer has
said that gas priced at over $ 5 per mBtu, will force the country to remain dependent on
imports.
RIL has “discovered” a well head price of $ 4.33 per mBtu, which will work out to a
delivered price of between $ 5.2-$ 6.2 per mBtu after taxes and transport cost. RIL price
is opposed by power and fertilizer industry. If the price of gas in India is around $ 5 per
mBtu, at which fertilizer department says it can afford to buy the gas, the cost at which a
new plant in Nigeria, for example, can buy the gas will be around $ 2.5 per mBtu.
Fertilizer department says that if they get gas for less $ 3 per mBtu. That will make plant
viable, despite the $ 3.5 per tonne freight and port handling charges.

Article titled “Reliance KG gas pricing in with Doc” by Rajeev Jayaswal in The
Economic Times on 31 July, 2007. RIL’s gas pricing formula is independently examined
by the PM’s Economic Advisory Council (EAC) chairman C Rangarajan. The senior
officials that were involved in examining say that the end price of $ 4.33 per mmbtu is
reasonable in terms of prevailing rates of natural gas in the domestic and global markets.
But they have some reservation over the formula devised by RIL to derive the value of
gas. They say almost 97% of the component in RIL`s formula is the fixed component.
The pricing formula adopted by RIL is subject to an approval either by the government
(parent administrative ministry) or by the regulator, under the terms of the production
sharing contract.
Article titled “Wanted: a national benchmark price for gas” by Varun jaitly and
Anupama Airy on 1 August, 2007. The reports give insight about the intentions of
National Spot Exchange of India (NSEI) to set up a national level electronic spot market
for petroleum product and natural gas. NSEL said that it will help refiners sell products at
best possible rates and provide end users a place to buy at the most competitive rates. It
also said that it would stand counter party guarantor with respect to all trades besides
provide services like quality certification, storage of goods and customized value added
services. With India moving from being a gas deficit to a gas rich country, the spot
market will definitely become a necessity in coming years.

Article titled “Government cannot set price, supply of gas: Ministry” by Siddharth
Zarabi in Business Standard on 27 August, 2007. The petroleum ministry has rejected
key conclusions of two separate reports on the vexed issue of gas pricing and allocation
ahead of the first meeting on the issue by the empowered group of ministers ( EGoM)
headed by External Affairs Minister Pranab Mukherjee.
The two reports were submitted by Committee of secretaries and PM`s Economic
Advisory Council. The ministry said that the government could only formulate a gas
supply prioritization policy that encouraged the use of gas in certain sectors. However
PSC under NELP, which involves private sector participation do not empowered the
government to allocate gas for priority sectors. These views contradict both reports that
recommend priority based allocation of gas.
The ministry also said that the government’s right in pricing gas is limited to examining
whether a proposal conforms to an arm’s length pricing basis or not between the buyer
and seller. The government cannot impose differential pricing if the market can bear
higher price.

Chapter 5
Research Methodology

The research problem is going to be studied by using Descriptive research.

Descriptive research is used to obtain information concerning the current status of
the phenomena to describe "what exists" with respect to variables or conditions in
a situation. The methods involved range from the survey which describes the
status quo, the correlation study which investigates the relationship between
variables, to developmental studies which seek to determine changes over time.
 For research no primary data was collected, only secondary data has been
collected. No hypothesis has created and I will be discussing about the present
scenario and likely future developments.

5.1 Data Sources

Secondary Data: The secondary data was collected by visiting various Internet
sites such as ministry of power, ministry of petroleum, google search etc. The data
collected from various research papers and from various newspaper articles.
How you will process data?

5.2 Sources of Error

The data has been collected from the secondary sources so the possibility of error
is there. The results generated may have limitations as I am discussing the present
scenario and future developments which are based on present conditions. So, as
the present scenario will change the future developments will also get effected.

Chapter 6
Findings of data

6.1 WORLD NATURAL GAS SCENARIO

The primary energy consumption of the world has increased by 2.4% in 2006, down from
3.2% in 2005 and just above the 10-year average. Except nuclear power the growth
slowed for every sector. The most rapid growth is again shown by 4.9% increase in Asia
Pacific region, while North America’s consumption fell by 0.5%. China continued to
account for the majority of global energy consumption growth and its energy
consumption rose by 8.4%. The slow consumption among energy importers and
continued strong consumption growth among energy exporters was the impact of
continued high energy prices.
The consumption of natural gas in the world grew by 2.5% in 2006, which is below than
the 3.4% growth seen in 2005 but close to the 10-year average. Increased Russia and
China consumption results in the declining of US and EU consumption. Despite an
increase in gas used for power generation, gas consumption declined for the second year
in a row in the US. High prices and warmer-than-normal weather made the European
consumption fell. UK as well as in eastern European countries that experienced large
increases in contracted prices shown a large decline in the consumption. A strong
increase in Russian gas consumption was seen and it accounts for nearly 40% of the
global increase. Chinese consumption grew by more than 20%. Gas production rose by
3% in 2006, slightly above the 10-year average. In Russia rapid growth among
independent producers led to the largest incremental growth in production. Production in
the US rose by 2.3% as it is recovering from hurricane-related outages, the strongest
growth since 2001. The world’s largest decline in 2006 is recorded by UK, with output
falling by 8.6%: in volume terms, its sixth consecutive annual decline. In 2006,
International trade in natural gas increased by 3.1%, nearly half of the 10 year average.
Due to weak demand among key importers and reduced export availability among key
suppliers pipeline shipments stagnated as a result of strong domestic demand growth. Net
exports declined from Russia, Canada and Argentina. Liquefied natural gas (LNG)
receipts in Asia, the world’s largest regional market, rose by 10%. In 2006, the shipments
of LNG rose by a strong 11.8%, well above the 10-year average. European LNG imports
rose by 20% and US imports declined slightly. Egypt, Nigeria, Qatar and Australia saw
the largest increases in LNG exports.
GTL (the conversion of gas to liquid form), LNG (liquid natural gas) transportation and
gas by wire, in which gas energy is converted to electricity close to source and
transmitted by grid, offer ways of commercializing reserves that are currently too remote.
The commercial viability of GTL remains distant but, given the prize of converting gas
into a readily transportable end fuel, the prospect of GTL breakthroughs cannot be
discounted. Significant increases in LNG, in particular, are set to provide much of the
flexibility and hence market liquidity to move the gas market on to a more global and
dynamic footing . Current orders will result in significant increases in the global fleet of
LNG ships by 2006, with the prospect of significantly greater increases after that. LNG is
predicted to take a 10 per cent share of the global gas market in five years’ time, a huge
step forward for this industry. Within the US alone, there are plans in place to build eight
LNG terminals to accommodate the growing need for imported gas. Pipelines, though,
will remain the dominant transportation method. Already, investment in more orthodox
pipeline transportation is set to increase the supplies that can be taken from Russian,
Libyan and Gulf fields to markets in Europe, the Caspian Sea and China.

6.1.1 RESERVES AND RESOURCES OF NATURAL GAS

For the year 2006, proved world natural gas reserves, (proved reserves are generally
taken to be those quantities that geological and engineering information indicates with
reasonable certainty can be recovered in the future from known reservoirs/deposits under
existing economic and operating conditions.)As reported by BP Statistical Review of
World Energy June 2007, were estimated at 181.46 trillion cubic metres—1.26 trillion
cubic metres higher than the estimate for 2005 showing 0.7% increase, yielding reserves
to production ratio of 63.3. Total Middle East constitutes the largest share of the proven
reserves at 73.47 trillion cubic metres (2593.53 trillion cubic feet). Among the Middle
East countries Iran and Qatar taken together constitutes 53.49 trillion cubic metres
(1778.23 trillion cubic feet) of proven reserves. Reserve to production ratio indicates that
reserves would last for more than 100 yrs. Brazil shows highest (13.5%) increase over the
previous year reserve.
.

FIGURE 1
Source: BP Statistical Review, 2007

The regional grouping of total Europe and Eurasia accounts for the next largest proved
reserves of 64.13 trillion cubic metres (2263.69 trillion cubic feet) constituting 35.3% of
total proved reserves. Within the group the Russian Federation accounts for the largest
proved reserves of 47.65 trillion cubic metres (1682.07 cubic feet) comprising of 26.3%
of total proved reserves. If we talk of Former Soviet Union, it accounts for 58.11 trillion
cubic metres (2051.28 trillion cubic feet) of total proved reserves, which is 32% of total
world’s share.
Total Asia Pacific has 14.82 trillion cubic metres (523.15 trillion cubic feet) of proved
reserves which amount to 8.2% of total proved reserves. With the reserve to production
ratio 39.3. The major countries in this region which have remarkable reserves are
Australia, China, Indonesia and Malaysia.
Total African region has 14.18 trillion cubic metres (500.67 cubic feet) of total proved
reserves. The countries which have some remarkable reserves in African region are
Algeria and Nigeria. They together account for 9.71 trillion cubic metres (342.91 trillion
cubic feet) of the total proved reserves and contributes 5.4% in the total reserves.
Total North America has 7.98 trillion cubic metres (281.62 trillion cubic feet) of total
proved reserves, making 4.4% of the world’s total. USA is the largest contributor to this
region with 5.93 trillion cubic metres (209.15 trillion cubic feet) of the total proved
reserves, which is 3.3% share of total proved reserves. North America has greater
potential in the Alaskan region; hence this figure can change dramatically in the coming
years.
Total South and Central America has the lowest proved reserves of all the groups with
3.8% share of the world total. It has 6.88 trillion cubic metres (242.83 trillion cubic feet)
of total proved reserves with reserves to production ratio of 47.6 which is higher than the
North American region as well as the Asia Pacific region

FIGURE 2
World Natural Gas Reserves by Region, 1980-2007

Source: www.eia.doe.gov

Middle East and Eurasia account for almost three-quarters of the world’s natural gas
reserves. In January 1, 2007, about 58 percent of the world’s natural gas reserves were
reported to be located in Russia, Iran, and Qatar. Reserves in the rest of the world are
fairly evenly distributed on a regional basis.
Over the past decade, high rates of increase in natural gas consumption are reported, most
regional reserves-to-production ratios are substantial. Worldwide, the reserves-to-
production ratio is estimated at 65 years. Reserves-to-production ratio of Central and
South America is 52.0 years, Russia 80.0 years, and Africa 88.0 years. The Middle East’s
reserves-to-production ratio exceeds 100 years
Worldwide undiscovered natural gas is estimated at 4,136 trillion cubic feet, slightly
larger than the IEO2007 projection for cumulative worldwide natural gas consumption
from 2003 to 2030.

FIGURE 3

World Natural Gas Resources by Geographic Region, 2006-2025

Source: www.eia.doe.gov

6.1.2 PRODUCTION OF NATURAL GAS

Total gas production in the year 2006 has been 2865.3 bcf (billion cubic feet), which
shows an increase of 3.0% over the previous year’s production of 2779.8 bcf. The highest
individual producer is USA, It accounts for 524.1 bcf of gas production contributing
18.5% of the total output.
Total Europe & Eurasia produces the largest volume constituting 37.3% of the total
output. It produces 1072.9 bcf in 2006 recording an increase of 1.2% over its previous
year contribution which was 1060 bcf. The output of Denmark, Germany, Italy,
Netherlands, Poland, Ukraine, U.K, declined while it increased in Azerbaijan,
Kazakhstan, Norway, Uzbekistan, Turkmenistan, Russian Federation, Romania.
North America stood as a second largest producer with 26.5% contribution in the total
output. It produced 754.4 bcf of production and recording an increase 2.3% over the
previous year production of 736.9 bcf. Mexico shows a significant increase of 10.4%
over its previous year production of 39.2 bcf.
Total Asia Pacific continue to keep its increasing production trend, its production
recorded as the third largest contribution about 13.1% to the total output, it shows an
increase of 4% over its previous year production of 362.6 bcf, except India and other
Asia Pacific region shows a decline in its production otherwise all have positive change
in their production some shows slight changes and some are showing significant changes.
Total Africa is showing an upward trend in production since 1996, it recorded the highest
increase in production over the previous year, it shows a percentage change of 9.5% over
the previous year. Except Algeria all regions have shown increase in production, Libya
shows a significant increase of 31% change over the previous year.
Middle East production is also significant in 2006 to the total output, it contributed 11.7%
to the total output. It is showing an upward trend and contributed 335.9 bcf of gas, its
contribution is more than doubled since 1996 when it contributed 158 bcf. All countries
of the Middle East increased their production over the previous year.
South & Central America is the least contributor to the total output. However except
Venezuela whose production decline in 2006, the production of every other country has
increased over the previous year. Total South & Central America contributed 5.7% to the
total output.
6.1.3 DEMAND OF NATURAL GAS
The natural gas consumption in the non-OECD countries grows more than twice as fast
as in the OECD countries. Production increases in the non-OECD region account for
more than 90 percent of the growth in world production from 2004 to 2030.
Consumption of natural gas worldwide increases from 100 trillion cubic feet in 2004 to
163 trillion cubic feet in 2030 as reported in the International Energy Outlook (2007). By
energy source, the projected increase in natural gas consumption is second only to coal.
Natural gas remains a key fuel in the electric power and industrial sectors. In the power
sector, natural gas is an attractive choice for new generating plants because of its relative
fuel efficiency. Natural gas also burns more cleanly than coal or petroleum products, and
as more governments begin implementing national or regional plans to reduce carbon
dioxide emissions, they may encourage the use of natural gas to displace liquids and coal.
Much of the world’s natural gas use is for industrial sector processes. The industrial
sector accounted for 44 percent of world natural gas consumption in 2004 and is
projected to account for 43 percent in 2030. With world oil prices expected to remain
high relative to historical levels throughout the projection period, natural gas is projected
to displace liquids in the industrial sector to some extent.

FIGURE 4
World natural gas consumption by end use sector, 2004-2030

Source: www.eia.doe.gov
An average annual rate of 1.9 percent increase was projected by EIA from 2004 to 2030
in the industrial use of natural gas, as compared with an average increase of 1.1 percent
per year for liquids consumption in the industrial sector.
Over one-half of the world’s total natural gas use was accounted by the OECD member
countries, non-OECD Europe and Eurasia accounted for one-quarter, and the other non-
OECD countries accounted for the remainder.
In the non-OECD countries natural gas consumption grows more than twice as fast as
consumption in the OECD countries, from 2004 to 2030 with 2.6-percent average annual
growth for non-OECD countries, compared with an average of 1.2 percent for the OECD
countries. Demand in the non-OECD countries for natural gas accounts for 71 percent of
the total world increment in natural gas consumption over the projection period. Natural
gas use increases from less than one-quarter of the world total in 2004 to 35 percent in
2030 in the non-OECD countries (excluding non-OECD Europe and Eurasia).
In world’s total natural gas production the OECD countries accounted for 40 percent of
the world’s total natural gas production and 52 percent of total natural gas consumption
in 2004; in 2030, they are projected to account for only 27 percent of production and 43
percent of consumption. In the OECD nations the production of natural gas increases by
an average of only 0.4 percent per year, whereas their demand increases by 1.2 percent
per year. As a result, the projections were made that OECD countries will rely
increasingly on imports to meet natural gas demand, with a growing percentage of traded
natural gas coming in the form of LNG. In 2030, more than one-third of the natural gas
consumed in OECD countries is projected to come from other parts of the world, up from
22 percent in 2004.
In North America the consumption of natural gas is projected to increase at an average
annual rate of 1.0 percent from 2004 to 2030. In the United States the average annual
growth rate for the demand of natural gas is projected to be 0.6 percent, significantly less
than in Canada and Mexico, largely because of the impact of higher natural gas prices
and supply concerns in U.S. natural gas markets. The United States accounted more than
80 percent of the 27.6 trillion cubic feet of natural gas consumed in North America in
2004 and emerged as the largest consumer in North America.
In OECD Europe, Natural gas is expected to be the fastest growing fuel source with
demand increasing at an annual average rate of 1.4 percent, from 18.8 trillion cubic feet
in 2004 to 23.0 trillion cubic feet in 2015 and 26.9 trillion cubic feet in 2030. The
majority of total incremental growth in natural gas use for power generation is projected
to 2030. Being less carbon intensive than oil or coal-fired generation, and its cost
competitiveness over renewable energy, make natural gas the fuel of choice for new
generating capacity in OECD Europe.

Natural gas consumption in Japan is projected to grow on average by 1.4 percent per year
over the projection period, from 3.0 trillion cubic in 2004 to 4.3 trillion cubic feet in
2030. The electric power sector is projected the strongest growth in consumption,
averaging 1.7 percent annually from 2004 to 2030. The growth at an average annual rate
of 1.6 percent from 2004 to 2030 is projected for the total natural gas consumption in
South Korea. The country’s predominant source of demand for natural gas in 2004 was
the residential sector, accounting for 39 percent of the total. The electric power sector
was a close second at 33 percent of total natural gas use, followed by the industrial sector
at 20 percent of the total.

The non-OECD Europe and Eurasia region is more reliant on natural gas than any other
region in the world. United States is the largest consumer and Russia is second in total
natural gas consumption, with demand totaling 16.0 trillion cubic feet in 2004 and
representing 55 percent of Russia’s total energy consumption. 44 percent of their
combined total energy needs of the other countries of non-OECD Europe and Eurasia
were met with natural gas in 2004, consuming 8.4 trillion cubic feet.

In 2004, non-OECD Asia The fastest growth in natural gas consumption among all
regions is projected, which accounted for only 8.5 percent of the world total natural gas
consumption. But total natural gas consumption from 2004 to 2030 is projected to
account for almost 30 percent increase. In non-OECD Asia the natural gas consumption
is projected more than triples, from 8.5 trillion cubic feet in 2004 to 27.4 trillion cubic
feet in 2030.
In 2006, India increased its spot and short-term LNG purchases, reportedly paying more
than $9 per million Btu for one cargo (a year earlier, Royal Dutch/Shell could not find
customers for LNG from its Hazira re-gasification terminal at a price of about $8 per
million Btu). In India natural gas shortages have reportedly left natural-gas-fired electric
power plants and fertilizer plants underutilized in the past few years. According to the
projections India’s natural gas consumption will rise rapidly in the mid-term, growing by
6.2 percent per year on average from 2004 to 2015. The acceptance of international
natural gas prices in India, and the Krishna-Godavari basin will start supplies from
around 2009-2010, domestic natural gas supply is expected to catch up with currently
underserved demand and also expand to serve new demand.

6.2 THE POWER SECTOR PERFORMANCE

Indian economy growth is targeted to be over 8%. The major role in the sustainable
development of the economy has to be played by energy. For achieving growth of such a
magnitude, the sector wise analysis of electricity, gas and water supply sector put
together should also grow by 8%. The average growth in the economy has been
estimated to be 7% in first four years ending 2005-06, according to the Economic Survey
2005-06. The actual growth of GDP in real terms during 2002-03 was 4.2%, 8.5% during
2003-04, and 7.5 % during 2004-05. The growth of economy has been estimated to be
8.1% during 2005-06. The growth in the electricity generation growth has increased to
over 5.1% during the last three Years of Tenth Plan., which was around 3.1% towards the
end of IX Plan (2001-02).
FIGURE 5

The shortages in demand met during peak time and overall energy supply is characterized
as power supply position. All India basis the peaking shortage is about 12% however,
peaking shortage is much more in every region. On regional basis the energy shortages
are varying in magnitude and overall shortage on all India basis is about 7%. In the next
10 years in between 2006-2016 the generation capacity is required to be doubled to meet
the growing demand and shortages encountered in various regions, so that the total
demand both in terms of peak and energy can be met.

FIGURE 6
India ranks sixth in terms Electricity Generation after United States, China, Japan,
Russia, and Canada.
The year wise growth in electricity generation has been 3.2%, 5.1%, 5.2% and 5.2%
during 2002-03, 03-04, 04-05 and 05-06 respectively. A growth rate of 7.5 % has been
recorded in the year 2006-07(up to Dec-2006). The Compounded Annual Growth Rate
(CAGR) of generation is expected to be about 5.1% during the 10th plan. However,
higher growth could have been achieved if for the existing and new gas based plants
commissioned during 10th plan, adequate gas would have been available.

The total all India generation capacity is 134717 MW as on 30.06.2007. The break up of
all India generating installed capacity in shown below in the graph as provided by the
CEA (central electricity authority).

FIGURE 7
 Sou
rce: CEA
DEMAND PROJECTION AND GENERATION ADDITION
In the 10th plan the targeted addition capacity of 41,110 MW comprising 14, 393 MW
hydro, 25, 417 MW thermal and 1, 300 MW nuclear was fixed. For state power utilities
and IPPs, keeping in view the preparedness of various state power utilities and IPPs a
moderate target was set. The sector wise, type wise summary of this capacity addition
target is given in Table below.
TABLE 4

10th PLAN CAPACITY ADDITION TARGET-SECTOR WISE

Source: Planning
commission

The capacity addition of 16,423 MW and 19,119 MW was achieved in 8th & 9th plan.
During the 10th Plan the likely achievement of capacity addition is expected to be 30641
MW. The actual capacity addition is expected to be much higher than the earlier five year
plans, the capacity addition target of 10th plan could not be achieved. After analyzing the
10th plan lessons have been learned and reasons for the slippages have been found out.
During the first year of 10th plan, public and private sectors projects totaling to 3,009
MW could not be taken up due to various reasons which included non availability of
escrow cover by State Government to IPP projects and fund constraints.
There was also delay in super critical technology tie-up by BHEL for six units of 660
MW to be taken up by NTPC which resulted in delay in tendering. During 10th plan
projects totaling to 5,008 MW capacities could not take off, which were identified for
execution.
The target as were set in the plan by the planning commission and the achievements
made by the power sector in April 2006- March 2007 is shown in the graph below. The
achievement is less than 50% of the target set by the commission.

FIGURE 8

Source: CEA
RURAL ELECTRIFICATION

Rural electrification is a vital programme for socio-economic development of rural areas.

Economic development and generate employment are the objectives are to trigger by
providing electricity as an input for productive uses in agriculture and rural industries, the
quality of life of the rural people is to be improved by supplying electricity for lighting of
homes, shops, community centres and public places in all villages.
Rural Electricity involves supply of energy for two types of programmes
1. Production oriented activities like minor irrigation, rural industries etc.;
2. Electrification of villages.

TABLE 5

Source: CEA

The Government of India has an ambitious mission of ‘POWER FOR ALL BY 2012’.
This is a great challenge. At the same time, this provides great opportunities for
developers and investors. The Electricity Act, 2003 has made special provisions for not
only de-licensing generation of power, but even de-licensing distribution of power and
systems which promote de-centralized distributed generation and supply. This challenge
is converted into opportunities for development and growth, the Government of India has
put in place a very ambitious programme, namely Rajiv Gandhi Grameen Vidyutikaran
Yojana to create a sound Rural Electricity Infrastructure.

Chapter 7
Analysis of the data
Indian LNG Price and Sources
The LNG is being sourced through long term contracts as well as in the spot market. The
prices of LNG vary from one source to the other.
The price of LNG imported from Iran being linked to Brent crude, but with a ceiling. A
unit of LNG will cost India pay $ 1.2 plus 0.065 into the Brent crude price average,
subject to the upper ceiling of $ 31 a barrel. This implies that despite Brent crude price
crossing $31 a barrel, the applicable price would remain 0.065 of $31 a barrel, i.e. $3.215
dollars per million British thermal unit. The LNG price, for the first three years of
supplies, was fixed at $2.97 per unit in order to make imports competitive with the Qatar
price.
Since the price of Brent has jumped from $31 per barrel to $70 per barrel, Iran is showing
unwillingness to supply the LNG at the contracted price of $3.215 per mmbtu. Iran now
wants $4.78 per mmbtu.

The price at which Shell wants for LNG from its Hazira terminal is in between $7 to $9
per mmbtu. The last consignment was delivered to Gujarat State petroleum Corporation
(GSPC) in December 2005. Since GSPC, the first and the only customer of Shell from
Hazira project, decided not to extend the agreement at the exorbitantly high price of $9
per mmbtu. Shell has preferred to wait for the favorable environment but not willing to
cut down its prices. It is not merely a wait game, instead the company is negotiating hard
with prospective clients and feels that with rising demand and completion of gas rid in
Gujarat, the users of liquid fuels would see merit in shifting to gas even at high prices of
$7 to $9 per mmbtu. The absence of supplies from Shell created a shortage of 0.7milliom
cubic metres of gas per day in the region. The operations started in after a lull of 5
months. These days the price charged by Shell ranges around $8 per mmbtu.

In 1999, Rasgas and Petronet LNG entered into a Sales and Purchase Agreement (SPA),
for 25 years, for 7.5Mta of LNG Supplies of 5 MMTPA LNG (equivalent to about 18
MMSCMD), under the first phase, commenced from 2004. The agreement was further
amended in August 2006 to implement the sale of the remaining 2.5 Mta. The delivery is
to commence from 2009. The price for LNG was 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 price translates to RLNG price of
$3.86/MMBTU ex-Dahej terminal. After 2008, the price will be linked to Japanese
Customs cleared (JCC) basket of crude oil within a price band of $16-$24 a barrel price
band.
Encouraged by the experience a new contract has been signed for import of 1.25 million
tones of LNG to run the Dabhol plant. RasGas of Qatar will start supplying LNG at
Dahej terminal from July7, 2007. However, the price for the new contract has not been
revealed. Petronet has said that they have committed to supply gas to Dabhol at rate of
$4.93 per MMBtu. Petronet plans to achieve this price by pooling the new gas with the
supplies from the previous contract under which the price comes out to be $3.86 per
MMBtu.
In 2007 Petronet has finalized a deal with the Australian gas supplier Gorgan. The price
of the LNG will be around $5.75 per mmbtu.

The present controversy that starts after RIL invited bids from group of companies from
Power and Fertilizer industry. The objective was to discover market price for sale of gas
produced from KG D6 gas field. Five companies each from Power and Fertilizer Industry
submitted their bids. The bids received through this mechanism range between $4.64 per
mmbtu to $4.86 per mmbtu, resulting in price discovery of $4.79 per mmbtu which
would be much higher than $2.4 what is presently being paid by these two industries. The
first one to cry foul was R-ADAG, on the pretext that RIL had already committed its
supplies, of 28mmscmd at price of $2.34 per mmbtu, from that field to RNRL. Though
the decision on price was pending in Bombay High Court, but, the Court had ruled out
any third party being approached for sale of this gas until further orders. Going by this
verdict, R-ADAG rendered the price discovery mechanism of RIL, through these ten
companies, as null and void since it is a breach of the interim order of the Bombay High
Court. Next to follow suit was Department of Fertilizer (DoF), which termed the bids
submitted by the fertilizer companies as void since the companies had not sought
approval from DoF. According to DoF, these companies could not bid for price of gas
unless the subsidy component for fertilizer industry was known. Further, the department
alleged that at such high price the subsidy bill might rise to Rs 88000 crores over the next
15 years. The Ministry of Power too raised concern over the resultant high price of
electricity at such high price of gas. Since then, there have been news articles coming
from variety of sources – politicians, news correspondents, environmentalists, experts
from respective fields, members of planning commission and the representatives of
affected companies.
At a presentations made by the RIL and other big gas producer like ONGC, headed by
Mr. Mukesh Ambani to the committee of secretaries (CoS). RIL has held the company
had arrived at the price of $ 4.33 per mmbtu for KG-D6 gas in transport manner. The
company claimed at apart from high revenues upsides (as profit petroleum) for the
government, gas sold at a price would also bring down fertilizer subsidy by Rs 6400
crores.
RIL’s gas pricing formula is independently examined by the PM’s Economic Advisory
Council (EAC) chairman C Rangarajan. The senior officials that were involved in
examining say that the end price of $ 4.33 per mmbtu is reasonable in terms of prevailing
rates of natural gas in the domestic and global markets. But they have some reservation
over the formula devised by RIL to derive the value of gas. They say almost 97% of the
component in RIL`s formula is the fixed component.
The pricing formula adopted by RIL is subject to an approval either by the government
(parent administrative ministry) or by the regulator, under the terms of the production
sharing contract.

India’s public and private corporations produce allegedly super normal profits in the
coming years. If the gas will not be available at the affordable price than the
government’s ambitious target to provide affordable power for all by 2012 will be
thwarted. RIL’s KG D6 gas field has one of the highest internal rate of return among
ongoing projects globally and would be the company’s major revenue earner in future.
The two major consumers of gas i.e power and fertilizers are regulated sectors with their
end products being sold at regulated prices. In fact the power sector earns only 14%
returns.
The government, through its Common Minimum Programme (CMP) and National
Electricity policy (NEP), has envisaged capacity addition to the tune of 100, 000 MW
during the Xth and XIth five year plans. Capacity addition to tune of 80, 000 MW during
the XIth plan looks critical as government has added only 21, 180 MW during the Xth plan
against target of 41, 110 MW. RIL has sought a price of $ 4.67 per mmbtu for power
plants. Gas at $ 4.67 per mmbtu would push the electricity tariff to over Rs 5 per unit. In
the past also government has re-negotiated power purchase agreement (PPA) to save
consumers from higher cost of power. So, there is a case here for changing PSC to limit
the gas price and returns to the contractors. If affordable gas will be available more than,
16000 MW of gas based plants can be added. Power sector indicate that for every dollar
increase in price of gas from $2.34 per mmbtu, the governments petroleum profit will go
up by Rs 17, 100 crore.

In all the contracts, the price of LNG is close to $5 per mmbtu or above it. Except the
contract made by petronet with Rasgas the delivered price is under $5 per mmbtu. The
price that RIL wants for its gas is reasonable in terms of prevailing rates of natural gas in
the domestic and global markets.
 Chapter 8
Conclusion and recommendations
The potential for use of gas in India’s power production is large. India has one of the
strongest economic growth rates in the world and has sufficient potential to maintain this
high growth rate over a sustained period of time. There are limitations to the use of coal
for power generation in terms of environmental considerations, quality and supply
constraints, gas will play an increasingly important role in India’s power sector.
Earlier the problems with the gas fired plants are uncertain supply of gas, distorted retail
pricing structure in the power sector and provision of subsidized gas to public gas-fired
plants which limits required investments in further gas exploration. But as now there are
new gas finds in the country and the claim by petroleum ministry that we will be gas
surplus nation in another two years. The supply problem will not be there.
The CEA and CoS are also in favour of market determine price for the new gas finds
according to the economic times report. According to a report in economic times it was
stated that the electricity tariff will go over Rs 5, if gas will be taken at market driven
price. But the power sector is already under losses and power tariffs need to be revised
upwards. As a growing economy and like every other developed country India will have
to move towards high cost society, the upward movement of tariffs is desirable. The
power sector needs to look towards the other things also except fuel, according to the 11 th
plan Rs 2, 70, 000 crore as transmission and distribution losses is expected. If the power
sector makes efforts to reduce that than it can easily takes gas at market driven prices
without any problem.
India is a growing economy, in 2006 the economy grew by 9.4%. It is expected to grow
more than 8% in 2007. GDP has been growing near 10% for the last few years. But
power tariffs have not revised for a long time. Salaries in India have been recorded
highest growth in the world. So, the paying capacity, purchasing power of Indian
consumer has increased. This development shows that there will be demand for power
even at higher tariffs.
As it is natural gas, is to be used to cater to the peak hour’s demand. The natural gas is
used for a small segment of total electricity produce. The share of thermal power plants in
total electricity produce is 65% as on 31.12.2006, out of which 55% are coal fired power
plants and 10% is gas fired power plants. Large power plants are coming up like UMPP,
Sasan, Mundra etc. These plants will reap huge economies of scale and will lead to much
lower tariffs for ex- Sasan project would supply the power at a low cost of Rs 1.196 per
unit.
According to the latest report by The Mint, India is all set to miss its 2012 power
generation target by 60%. The main reasons are inadequate supply of equipments and
shortage of firms that can make coal and ash handling, water treatment, and auxiliary
services for coal fired power plants. India currently has a power generation capacity of 1,
35, 006 MW, which is insufficient for the second fastest growing major economy in the
world. The gas fired plants are generally used in peak hours. This 60% loss can be
somewhat recovered if we give more attention towards gas fired plants, as there is now
abundant supply of gas within the country and it does not take time to produce electricity
like coal power plants. Moreover, problem with coal fired power plants is low calorific
value of coal, high ash content and its hazard to the environment and problems related to
transportation of coal, rate of production and its supply and quality. Due to Kyoto
protocol norms one day we have to reduce the use of coal and gas fired plants is surely a
better option.
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 www.wikypedia.com

 www.powermin.nic.in

 www.petroleum.nic.in

 www.bp.com

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 www.eia.doe.gov

 www.naturalgas.org

 www.cea.nic.in

 www.cercind.in

 www.economictimes.com

 www.livemint.com