Demand-Supply Situation

Reserves
The total resource base of oil and gas is the entire volume formed and
trapped in-place within the Earth before any production. The largest
portion of this base is non-recoverable by current or foreseeable
technology. This inability is either because of unfavourable economics,
or intractable physical forces, or a combination of both. At the next
level, the recoverable resources are divided into discovered and
undiscovered segments. In India reserves are classified as (a)
Prognosticated (which is basically all the resources “expected” to be
contained), (b) geological or in-place which is discovered resources but
not recoverable and (c) balance recoverable reserves.

The total proven reserves on natural gas in India as at the end of

FY2004 was about 927 billion cubic metres. This was marginally
higher than the reserves of 922 billion cubic metres at the end of
FY2003. The FY2003 reserves was over 23% higher than the FY2002
reserves of 750 billion cubic metres due to the giant gas discovery in
the KG basin. The total gas production in India was about 31,953
mcm in 2003-04 compared with 2,358 mcm in 1980-81. At this
production level, India’s reserves are likely to last for around 29 years;
that is significantly longer than the 19 years estimated for oil reserves.

Production Trends
The following Table presents natural gas production figures for nine
years till 2003-04. The figures for Q1 FY2005 (and Q1 FY2004) has
also been provided. It also gives a break-up in terms of onshore and
offshore production figures. As the Table shows, over 70% of the
country’s natural gas is produced offshore.

Unlike in the case of crude oil production in India, the production of

natural gas is showing an upward trend although at a nominal
production growth rate of 4.4% per annum (during FY1996-2004). In
fact, natural gas production in India has been increasing
continuously. The production of natural gas was about 8 bcm in
1985-86, 26.4 bcm in 1997-98 and 31.9 bcm in 2003-04.
 Table 1
Natural Gas Production in India (million cubic metres)

1995- 1996- 1997- 1998- 1999- 2000- 2001- 2002- 2003- Q1 Q1

96 97 98 99 00 01 02 03 04 2003- 2004-
04 05
Onshore
OIL 1433 1467 1670 1713 1729 1861 1619 1744 1880 476 462
ONGC 4296 4484 4948 5327 5478 5555 5615 5866 5779 1434 1343
Sub- 5729 5951 6618 7040 7207 7416 7234 7610 7659 1910 1805
total

Offshore
ONGC 16579 16794 18102 17514 17774 18465 18426 18376 17805 4463 4381

Private/ 331 510 1681 2874 3465 3596 4054 5405 6489 1617 1568
JVs
TOTAL 22639 23255 26401 27428 28446 29477 29714 31391 31953 7990 7754

Source: Ministry of Petroleum & Natural Gas

The production of natural gas by private players from the discovered

fields has increased over the last few years, indicative of the potential
role they can play in improving the gas supply position in the
Country.

Private JVs- Production and Share in

Total Production (% )

7000 25.0%
6000
20.0%
5000
4000 15.0%
3000 10.0%
2000
5.0%
1000
0 0.0%
1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2002-03 2003-04

Oil ('000 tonnes) Gas (mn. cubic metres)

Share of JVCs (Oil) Share of JVCs (Gas)

Source: Ministry of Petroleum & Natural Gas

 Among the States, Gujarat accounts for the major share of onshore
natural gas production (40%) followed by Assam / Nagaland /
Arunachal Pradesh (25%) and Andhra Pradesh (21%). The following
Table presents the State-wise natural gas production figures for the
last few years.

Table 2
Onshore Natural Gas Production in India
(million cubic metres)

States 1995 1996 1997 1998 1999 2000 2001 2002 2003 Q1 Q1
-96 -97 -98 -99 -00 -01 -02 -03 -04 2003 2004
-04 -05
Gujarat 2878 2932 3115 3166 3096 2850 2550 3534 3514 926 849
Assam/Nagaland 1912 1964 2042 2079 2106 2227 2023 2082 2242 562.4 547.6
/ Arunachal
Pradesh

Tripura 131 154 196 307 353 376 416 445 509 119 109
Tamil Nadu 117 92 95 107 138 200 348 464 605 129 140

Andhra Pradesh 679 799 1022 1218 1363 1604 1797 2036 1928 484 435

Rajasthan 12 10 148 163 151 159 100 162 168 45 42

Source: Ministry of Petroleum & Natural Gas

With most of India’s major oil and gas fields entering a declining
phase, concerns about long-term supply are not unjustified. However,
the gas finds by Reliance is likely to address the supply concern to a
large extent.

The Government has introduced attractive fiscal terms and conditions

in the oil and gas exploration policy. This has facilitated the major gas
discovery by Reliance, However, apart from the discovery by Reliance,
wells have been drilled by other players but without major success.
Apart from the gas find by Reliance, the gas reserves being discovered
are small in size and require advanced technologies and attractive
fiscal terms & conditions to be commercially viable.

Demand
Natural gas is not a renewable source, since there is a fixed volume
amount of it trapped in the Earth. The price of natural gas is quite
comparable with the prices of alternative fuels/raw materials (based
on the thermal equivalence of substitute fuels). This factor, along with
other advantages, has led to a sharp increase in the demand for
natural gas. The demand for natural gas (allocated so far) in India, at
about 120 mmscmd, is over one-and-a-half times the current gas
supply of about 70 mmscmd. The demand for natural gas is from
industries like power, fertiliser, sponge iron and glass/ceramics.
However, currently the main supplies are made to the fertilizer and
power sectors because of the shortage of gas. Further, according to
the India Hydrocarbon Vision 2025 Report, the demand for natural
gas is expected to show a sharp rise in future because of its
environment friendliness and cost competitiveness.

Demand for Natural Gas

(mmscmd)

450

400 391
350

300
313

250
231
200

150 151
100 110

50

0
1998-99 2001-02 (P) 2006-07 (P) 2011-12 (P) 2024-25 (P)

Source: India Hydrocarbon Vision 2025

Long-term Supply Issues

The Government of India (GoI) is considering all options available to
increase the supply of natural gas in the country. Some of these
options are discussed here.

Attractive New Exploration and Licensing Policy (NELP):

India is heavily dependent on imports to meet the rapidly growing

demand for petroleum products. Current demand and supply
projections indicate that the level of self-sufficiency is likely to decline
to about 30% over the next few years. Substantial efforts are
therefore, necessary to boost the level of exploration activity in the
country, so that, new finds can be made and the level of crude oil and
gas production significantly increases in the years to come. India
today remains one of the least explored regions with well density per
thousand sq. kms. being among the lowest. It is also evident that vast
amount of capital investments are necessary if exploration efforts are
to be substantially augmented. Therefore, there is need to attract both
the National Oil Companies (NOCs), as well as, private sector oil
companies to invest in this critical area.

With this background, a New Exploration Licensing Policy (NELP) was

formulated by the government in 1997-98 to provide a level playing
field in which all parties could compete on equal terms for the award
of exploration acreage.

So far 4 NELP rounds (past 5 years) have been announced and a total
of 90 blocks were awarded. This is against around 30 blocks awarded
in the 10 years prior to the NELP. In the 4th round of NELP, A total of
24 blocks comprising onland & offshore, including deepwater blocks,
were under offer under the fourth round of NELP.

The results of the NELP-IV bids have been evaluated. Totally, 19

companies bid for 22 out of the 24 oil and gas blocks on offer.

ONGC has bagged 15 of the 24 oil and gas exploration blocks on offer
in the fourth round of New Exploration Licensing Policy (NELP). Cairn
Energy won an on-land block on its own strength and one in
association with ONGC. BPCL bagged three blocks in partnership with
ONGC.

Meanwhile, HPCL bagged two blocks in consortium with ONGC.

Gujarat State Petroleum Corporation bagged three on-land blocks -

one in partnership with Jubilant Enpro Ltd and GeoGlobal Resources,
another with Jubilant Enpro, GeoGlobal and Price Petroleum and the
last with Enpro Finance and GAIL (India) Ltd.

RIL, which teamed up with Hardy Oil of UK to bid for eight of the 12
deepwater blocks on offer, bagged one block.

Award of contracts under NELP I, II, III and IV in a short time span is
probably a reflection of the seriousness with which the GoI is
considering involving the private sector in oil & gas exploration
activities in India.

Gas imports using pipelines: Although the Middle East is a gas-rich

region, the level of economic activity there is not high enough for all
the gas discovered to be consumed. Thus, the surplus gas can be
imported into India either via subsea pipelines or onshore pipelines
through Pakistan. However, not much progress has taken place in this
regard, primarily because of the prevailing regional tension and
difficulty in laying subsea pipelines. There is some positive
development on Indo Bangladesh pipeline. Only hitch is low gas
production in Bangladesh relative to demand in India.

Coal bed methane (CBM): CBM is an unconventional gas resource

and there has been significant production of it in the US. CBM is the
methane gas trapped in coal of bituminous and sub-bituminous
quality. Indian coal reserves of around 200 billion tonnes are believed
to contain around 800 billion cubic metres of methane. In the past,
the Ministry of Coal had awarded three contracts for the exploitation
of CBM. However, significant progress has not been made in these
projects as the players perceived that the terms and conditions of the
contracts were not as attractive as those offered for the oil exploration
contracts. In the US, where CBM has achieved significant production,
the business was initially promoted by the provision of tax
concessions.

In India, the production of CBM has yet to take place. Under the
current policy, the blocks are identified by the Ministry of Coal and
awarded by the Ministry of Petroleum and Natural Gas. ONGC is
carrying out CBM operation in West Bengal (Raniganj coalfield) and
Jharkhand (Jharia coalfield). The Government has approved
exploration and exploitation of CBM by M/S Great Eastern Energy
Corporation Ltd. in the Raniganj area in West Bengal and the contract
for this block was signed in May 2001.

Meanwhile, the first round of CBM exploration was announced in

April 2001. The blocks on offer in this round were located in
Jharkhand (2 blocks), Madhya Pradesh (3), Rajasthan (1) and West
Bengal (1). The terms and conditions included a 10% royalty and
production-linked payments, taxes and commercial bonus. Sixteen
bids were received for the seven CBM blocks offered for exploration
and production. The blocks, which attracted bids, were: East Raniganj
in West Bengal, Bokaro & North Karanpura in Jharkhand, East
Sohagpur and West Sohagpur in Madhya Pradesh and North Barmer
in Rajasthan. The Satpura block in Madhya Pradesh did not attract
any bid. The companies that participated either alone or as a
consortium included:

ƒ Oil & Natural Gas Corporation Ltd. (ONGC)

ƒ Indian Oil Corporation (IOC)
ƒ Reliance Industries Limited
ƒ Essar Oil Limited
ƒ Great Eastern Energy Corporation Limited

Five of the blocks have been awarded to the successful bidders in

2002. Additionally, 2 blocks were awarded on nomination basis in
2003. One more contract was revived and signed afresh. A second
round of bidding has recently been announced with an offer on 9
blocks.
Import of LNG:

Realising the ease of transporting natural gas as LNG1 and the

growing demand for fuel in India, the GoI had set up a new company
Petronet LNG, with GAIL, ONGC, IOC and Bharat Petroleum
Corporation Limited (BPCL) as the main promoters. Petronet LNG has
been entrusted with the task of developing terminals in the country
for importing LNG. Petronet LNG has signed a gas purchase contract
with Ras Gas, Qatar, for the import of 5 mmtpa of LNG at Dahej
(Gujarat) and 2.5 mmtpa at Kochi (Kerala). Apart from Petronet LNG,
a number of other players have shown interest in developing LNG
import terminals in the country (refer Table 3).

Table 3
LNG Projects

Port State Company/ Capa Expected

Location Consortium city Commissio
(mmt ning Date
pa)
Pipavav Gujarat British Gas, NTPC, 2.5 NA
Sea King
Infrastructure
Maroli Gujarat UNOCAL 2.5 NA
Dahej Gujarat Petronet LNG 5.0 Commissio
ned
Kakinad Andhra Indian Oil, Petronas, 2.5 NA
a Pradesh BP Amoco, Kakinada
Port Co.
Ennore Tamil Nadu TIDCO + Partner 5.0 NA
Kochi Kerala Petronet LNG 2.5 NA
Tuticori Tamil Nadu Indian Gas 2.5 NA
n
Vizag Andhra TOTAL/HPCL 2.5 NA
Pradesh
Mangalo Karnataka Finolex 2.5 NA
re
Hazira Gujarat Shell 2.5 Q4 2004
Trombay Maharashtra Tata Power, TOTAL 3.0/ NA
6.0
Dabhol Maharashtra Dabhol Power 5.0 NA

1
When Natural Gas is cooled to a temperature of approximately -161 deg. C at atmospheric pressure, it condenses to LNG. The
volume reduction is by 600 times. The weight of LNG is half that of water; actually about 45% as much. LNG is colourless,
odourless, non-corrosive and non-toxic. Neither LNG, nor its vapour can explode in an unconfined environment. The supply of
LNG involves four stages: Generation of upstream gas, Liquefication at Site, Shipping of Liquid Gas, Re-Gasification of Shipped
Gas, and, Transportation via Pipelines to End-users.
 Company
Gopalpu Orissa Al-Manhal 5.0 NA
r
Jamnag Gujarat Reliance 5.0 NA
ar
Compiled by INGRES

As may be seen from the above table, only 2 projects (Petronet and
Shell) are in the advanced stage. In fact, Petronet’s LNG terminal at
Dahej (Gujarat) has already been commissioned. There is an
uncertainty regarding the future of the other projects.