2010

A Report on Demand & Supply

Scenario of Natural Gas in INDIA

Submitted By,
Pawan Preet Kaur M09-22
Rashmi Sharma M09-26
Vijay Thilak M09-27
Upasana Chourasia M09-35
Unnat Chauhan M09-34
RGIPT MBA 2nd Year
9/28/2010
Table of Contents
INTRODUCTION ....................................................................................................................................... 3
History of Natural Gas ......................................................................................................................... 4
Evolution of Natural Gas industry in India ............................................................................................ 4
Evolving Natural Gas Industry in India .................................................................................................. 6
SUPPLY OF NATURAL GAS ........................................................................................................................ 7
Global Supply ...................................................................................................................................... 8
Supply in India ..................................................................................................................................... 9
Natural Gas Imports .......................................................................................................................... 10
Liquefied Natural Gas ........................................................................................................................ 11
Unconventional Natural Gas .............................................................................................................. 12
Gas Hydrates ..................................................................................................................................... 14
Shale Gas ........................................................................................................................................... 14
Tight Gas ........................................................................................................................................... 15
DEMAND OF NATURAL GAS ................................................................................................................... 16
Sector Wise Demand Analysis ............................................................................................................ 18
Total Indian Gas Demand ................................................................................................................... 24
REFERENCES .......................................................................................................................................... 26

2|P ag e A Report on the Demand & Supply of Natural Gas in India

INTRODUCTION

Natural gas has moved to the center of the current debate on energy, security and climate. This study
examines the potential role of natural gas in a carbon constrained world, with a time horizon out to mid-
century.

The first point concerns the unique characteristics of the product. Natural gas possesses remarkable
qualities. Among the fossil fuels, it has the lowest carbon intensity, emitting less carbon dioxide per unit
of energy generated than other fossil fuels. It burns cleanly and efficiently, with very few non-carbon
emissions. Unlike oil, gas generally requires limited processing to prepare it for end-use. These favorable
characteristics have enabled natural gas to penetrate many markets, including domestic and commercial
heating, multiple industrial processes and electrical power.

Natural gas also has favorable characteristics with respect to its development and production. The high
compressibility and low viscosity of gas allows high recoveries from conventional reservoirs at relatively
low cost, and also enables gas to be economically recovered from even the most unfavorable subsurface
environments, as recent developments in shale formations have demonstrated.

These physical characteristics underpin the current expansion of the unconventional resource base in
world, and the potential for natural gas to displace more carbon-intensive fossil fuels in a carbon-
constrained world.
On the other hand, because of its gaseous form and low energy density, natural gas is uniquely
disadvantaged in terms of transmission and storage. As a liquid, oil can be readily transported over any
distance by a variety of means and oil transportation costs are generally a small fraction of the overall
cost of developing oil fields and delivering oil products to market. This has facilitated the development
of a truly global market in oil over the past 40 years or more.

By contrast, the vast majority of gas supplies are delivered to market by pipeline, and delivery costs
typically represent a relatively large fraction of the total cost in the gas supply chain. These
characteristics have contributed to the evolution of somewhat inflexible regional markets rather than a
truly global market in natural gas. This somewhat inflexible pipeline infrastructure gives strong political
and economic power to those countries that control the pipelines. To some degree, the evolution of the
spot market in Liquefied Natural Gas (LNG) is beginning to introduce more flexibility into global gas
markets and the beginning of real global trade.

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History of Natural Gas

The second point of context is to place our discussion of natural gas in its historical setting.

Natural gas is nothing new. In fact, most of the natural gas that is brought out from under the ground is
millions and millions of years old. However, it was not until recently that methods for obtaining this gas,
bringing it to the surface, and putting it to use were developed.

Before there was an understanding of what natural gas was, it posed somewhat of a mystery to man.
Sometimes, such things as lightning strikes would ignite natural gas that was escaping from under the
earth's crust. This would create a fire coming from the earth, burning the natural gas as it seeped out
from underground. These fires puzzled most early civilizations, and were the root of much myth and
superstition. One of the most famous of these types of flames was found in ancient Greece, on Mount
Parnassus approximately 1,000 B.C. A goat herdsman came across what looked like a 'burning spring', a
flame rising from a fissure in the rock. The Greeks, believing it to be of divine origin, built a temple on
the flame. This temple housed a priestess who was known as the Oracle of Delphi, giving out prophecies
she claimed were inspired by the flame.

These types of springs became prominent in the religions of India, Greece, and Persia. Unable to explain
where these fires came from, they were often regarded as divine, or supernatural. It wasn't until about
500 B.C. that the Chinese discovered the potential to use these fires to their advantage. Finding places
where gas was seeping to the surface, the Chinese formed crude pipelines out of bamboo shoots to
transport the gas, where it was used to boil sea water, separating the salt and making it drinkable.

Britain was the first country to commercialize the use of natural gas. Around 1785, natural gas produced
from coal was used to light houses, as well as streetlights.

During most of the 19th century, natural gas was used almost exclusively as a source of light. Without a
pipeline infrastructure, it was difficult to transport the gas very far, or into homes to be used for heating
or cooking. Most of the natural gas produced in this era was manufactured from coal, as opposed to
transported from a well. Near the end of the 19th century, with the rise of electricity, natural gas lights
were converted to electric lights. This led producers of natural gas to look for new uses for their product.

Evolution of Natural Gas industry in India

India has significant amounts of oil and natural gas, and four of India's top six revenue-generating
companies are in the oil and natural gas business. India has indigenous sources for around 60 percent of
its oil needs and has worked diligently to use substitute forms of energy to fulfill the other 40 percent.
Oil in commercial quantities was first discovered in Assam in 1889. The Oil and Natural Gas Commission
was established in 1954 as a department of the Geological Survey of India, but a 1959 act of Parliament
made it, in effect, the country's national oil company. Oil India Limited, at one time one-third
government owned, was also established in 1959 and developed an oil field that had been discovered by

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the Burmah Oil Company. By 1981 the government had purchased all of the Burmah Oil Company's
assets in India and completely owned Oil India Limited. The Oil and Natural Gas Commission discovered
oil in Gujarat in 1959 and opened other fields in the 1960s and 1970s.

The early oil fields discovered in India were of modest size. Oil production amounted to 200,000 tons in
1950 and 400,000 tons in 1960. By the early 1970s, production had increased to more than 8 million
tons. In 1974 the Oil and Natural Gas Commission discovered a large field--called the Bombay High--
offshore from Bombay. Production from that field was responsible for the rapid growth of the country's
total crude oil production in the late 1970s and throughout the 1980s. In FY 1989, oil production peaked
at 34 million tons, of which Bombay High accounted for 22 million tons. In the early 1990s, wells were
shut in offshore fields that had been inefficiently exploited, and production fell to 27 million tons in FY
1993. That amount did not meet India's needs, and 30.7 million tons of crude oil were imported in FY
1993.

India has thirty-five major fields onshore (primarily in Assam and Gujarat) and four major offshore oil
fields (near Bombay, south of Pondicherry, and in the Palk Strait). Of the 4,828 wells, in 1990 2,514 were
producing at a rate of 664,582 barrels per day. The oil field with the greatest output is Bombay High,
with 402,797 barrels per day production in 1990, about fifteen times the amount produced by the next
largest fields. Total reserves are estimated at 6.1 billion barrels.

The government has sanctioned ambitious exploration plans to raise production in line with demand
and to exploit new discoveries as rapidly as possible. In the late 1980s and early 1990s, there were
encouraging finds in Tamil Nadu, Gujarat, Andhra Pradesh, and Assam; many of these discoveries were
made offshore. Officials estimated that by the mid-1990s these new fields could contribute as much as
15 million to 20 million tons in new production and that total crude oil production could increase to 51
million tons in FY 1994. In the early 1990s, the government renewed attempts, which had begun in the
early 1980s, to interest foreign oil companies in purchasing exploration and production leases. These
efforts drew only a modest response because the terms offered were difficult, and foreign companies
remained suspicious of India's investment climate. One response, agreed on in January 1995, was an
Indian-Kuwaiti joint venture to invest in a new oil refinery to be built on the east coast of India.

Substantial quantities of natural gas are produced in association with crude oil production. Until the
1980s, most of this gas was flared off because there were no pipelines or processing facilities to bring it
to customers. In the early 1980s, large investments were made to bring gases from Bombay High and
other offshore fields ashore for use as fuel and to supply feedstock to fertilizer and petrochemical
plants, which also had to be constructed or converted to use gas. By the mid-1980s, natural gas could be
delivered to facilities near Bombay and near Kandla in Gujarat. In the mid-1990s, a 1,700-kilometer
trans-India pipeline was being built; the pipeline will link the facilities near Bombay and Kandla to a
series of gas-based fertilizer plants and power stations. Officials envisage a grid system covering 11,500
kilometers by FY 2004, which will supply 120 million cubic meters of gas a day. Total production in FY
1992 was 18.1 billion cubic meters.

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India's need for oil and petroleum-based products--about 40 million tons per year--far exceeded its
domestic production capabilities of 28 million tons per year in the early 1990s. Given India's dependency
on Persian Gulf resources, proposals were made in the early 1990s to develop natural gas pipelines from
Iran, Qatar, and Oman that would run under the Arabian Sea to one or more west coast terminals. To
assist with oil and natural gas production, in 1992 the government decided to open reserves to private
offshore developers. In February 1994, contracts were awarded for three offshore fields in the Arabian
Sea to an Indian-United States consortium and one in the Bay of Bengal to an Indian-Australian-Japanese
consortium. In June 1995, an agreement was reached to set a joint-venture company to construct the
first leg of the pipeline, from Iran to Pakistan.

Evolving Natural Gas Industry in India

With high economic growth rates and over 15 percent of the world’s population, India is a significant
consumer of energy resources. In 2009, India was the fourth largest oil consumer in the world, after the
United States, China, and Japan. Despite the global financial crisis, India’s energy demand continues to
rise. In terms of end-use, energy demand in the transport sector is expected to be particularly high, as
vehicle ownership, particularly of four-wheel vehicles, is forecast to increase rapidly in the years ahead.

According to Oil and Gas Journal, India had approximately 38 trillion cubic feet (Tcf) of proven natural
gas reserves as of January 2010. The EIA estimates that India produced approximately 1.4 Tcf of natural
gas in 2009, a 20 percent increase over 2008 production levels. The bulk of India’s natural gas
production comes from the western offshore regions, especially the Mumbai High complex, though the
Bay of Bengal and its Krishna-Godavari (KG) fields are proving quite productive. The onshore fields in
Assam, Andhra Pradesh, and Gujarat states are also significant sources of natural gas production.

In 2009, India consumed roughly 1.8 Tcf of natural gas, almost 300 billion cubic feet (Bcf) more than in
2008, according to EIA estimates. Natural gas demand is expected to grow considerably, largely driven
by demand in the power sector. The power and fertilizer sectors account for nearly three-quarters of
natural gas consumption in India. Natural gas is expected to be an increasingly important component of
energy consumption as the country pursues energy resource diversification and overall energy security.

Despite the steady increase in India’s natural gas production, demand has outstripped supply and the
country has been a net importer of natural gas since 2004. India’s net imports reached an estimated 445
Bcf in 2009.

Proven Natural Gas Reserves (January 1, 2010) 38 trillion cubic feet

Natural Gas Production (2009) 1,365 billion cubic feet

Natural Gas Consumption (2009) 1,810 billion cubic feet

The outlook for India’s upstream natural gas sector is more positive than its upstream oil sector,
although the IEA forecasts Indian natural gas peak production between 2020 and 2030. There have been

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several large natural gas finds in India over the last several years, predominantly offshore in the Bay of
Bengal. ONGC announced a find in late 2006 in the Mahanadi basin off the coast of Orissa state, with an
estimated 3 to 4 Tcf of reserves in place. In December 2006, ONGC announced a find of an estimated 21
to 22 Tcf of natural gas in place at the KG-DOWN-98/2 block off the coast of Andhra Pradesh in the KG
basin. In addition, stateowned Gujarat State Petroleum Corporation (GSPC) holds an estimated 1.8 Tcf of
natural gas reserves at the KG-OSN-2001/3 block in the KG area. Reliance Industries’ KG-D6 block holds
estimated reserves of 11.5 Tcf and came online in April 2009.

SUPPLY OF NATURAL GAS

Natural gas supply is a complex subject. The complex cross-dependencies between geology, technology
and economics mean that the use of unambiguous terminology is critical when discussing natural gas
supply. In this study the term “resource” will refer to the sum of all gas volumes expected to be
recoverable in the future, given specific technological and economic conditions. The resource can be
disaggregated into a number of sub-categories; specifically, “proved reserves,” “reserve growth” (via
further development of known fields), and “undiscovered resources,” which represents gas volumes
that will be discovered in the future via the exploration process.

The diagram shown in following figure illustrates how proved reserves, reserve growth and
undiscovered resources combine to form the “technically recoverable resource,” i.e., the total volume of
natural gas that could be recovered in the future, using today’s technology, ignoring any economic
constraints.

Modified McKelvey Diagram – Remaining Technically Recoverable Resources are

Outlined in Red

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In addition to the sub-categorization of the gas resource described above, it can also be further
partitioned into either “conventional” or “unconventional” resources. This categorization is geologically
dependent.

Conventional resources generally exist in discrete, well-defined subsurface accumulations (reservoirs),

with permeability1 values greater than a specified lower limit. Such conventional gas resources can
usually be developed using vertical wells, and often yield economic recovery rates of more than 80% of
the Gas Initially in Place (GIIP).

By contrast, unconventional resources are found in accumulations where permeability is low. Such
accumulations include “tight” sandstone formations, coal-beds, and shale formations. Unconventional
resource accumulations tend to be distributed over a much larger area than conventional accumulations
and usually require well stimulation in order to be economically productive; recovery factors are much
lower — typically of the order of 15% to 30% of GIIP.

Global Supply

Global supplies of natural gas are abundant. There is an estimated remaining resource base of 16,200
Tcf, this being the mean projection of a range between 12,400 Tcf (with a 90% probability of being
exceeded) and 20,800 Tcf (with a 10% probability of being exceeded). The mean projection is 150 times
the annual consumption of 108 Tcf in 2009. Except for Canada and the U.S., this estimate does not
contain any unconventional supplies. The global gas supply base is relatively immature; outside North
America only 11% of the estimated ultimate recovery of conventional resources has been produced to
date.

Global Remaining Recoverable Gas Resource (RRR) by EPPA Region, with Uncertainty
(excludes unconventional gas outside North America)

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As illustrated in the above figure, although resources are large, the supply base is concentrated, with an
estimated 70% in only three regions: Russia, the Middle East (primarily Qatar and Iran) and North
America. Political considerations and individual country depletion policies play at least as big a role in
global gas resource development as geology and economics, and will dominate the evolution of the
global gas market.

In contrast to oil, the total cost to deliver gas to international markets is strongly influenced by
transportation costs, either via long distance pipeline or as LNG. Transportation costs will obviously be a
function of distance, but by way of illustration, resources which can be economically developed at a gas
price of $1 or $2/Mcf may well require an additional $3 to $5/Mcf to get to their ultimate destination.
These high transportation costs are also a significant factor in the evolution of the global gas market.

Given the concentrated nature of conventional supplies and the high costs of long distance
transportation, there may be considerable strategic and economic value in the development of
unconventional resources in those regions that are currently gas importers, such as Europe and China. It
would be in the India’s strategic interest to see these indigenous supplies developed, and to develop
required technology.

Supply in India

Production of natural gas, which was almost negligible at the time of independence, is at present at the
level of around 87 million standard cubic meters per day (MMSCMD). The main producers of natural gas
are Oil & Natural Gas Corporation Ltd. (ONGC), Oil India Limited (OIL) and JVs of Tapti, Panna-Mukta and
Ravva. Under the Production Sharing Contracts, private parties from some of the fields are also
producing gas. Government have also offered blocks under New Exploration Licensing Policy (NELP) to
private and public sector companies with the right to market gas at market determined prices.

Out of the total production of around 87 MMSCMD, after internal consumption, extraction of LPG and
unavoidable flaring, around 74 MMSCMD is available for sale to various consumers.

Most of the production of gas comes from the Western offshore area. The on-shore fields in Assam,
Andhra Pradesh and Gujarat States are other major producers of gas. Smaller quantities of gas are also
produced in Tripura, Tamil Nadu and Rajasthan States. OIL is operating in Assam and Rajasthan States,
whereas ONGC is operating in the Western offshore fields and in other states. The gas produced by
ONGC and a part of gas produced by the JV consortiums is marketed by the GAIL (India) Ltd. The gas
produced by OIL is marketed by OIL itself except in Rajasthan where GAIL is marketing its gas. Gas
produced by Cairn Energy from Lakshmi fields and Gujarat State Petroleum Corporation Ltd. (GSPCL)
from Hazira fields is being sold directly by them at market determined prices.

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Natural gas has been utilised in Assam and Gujarat since the sixties. There was a major increase in the
production & utilisation of natural gas in the late seventies with the development of the Bombay High
fields and again in the late eighties when the South Bassein field in the Western Offshore was brought to
production.

Natural Gas Imports

India’s natural gas import demand is expected to increase in the coming years. To help meet this
growing demand, a number of import schemes including both LNG and pipeline projects have either
been implemented or considered.

Iran-Pakistan-India Pipeline
India has considered various proposals for international pipeline connections with other countries. One
such scheme is the Iran-Pakistan-India (IPI) Pipeline, which has been under discussion since 1994. The
plan calls for a roughly 1,700-mile, 5.4-Bcf/d pipeline to run from the South Pars fields in Iran to the
Indian state of Gujarat. While Iran is keen to export its abundant natural gas resources and India is in
search of projects to meet its growing domestic demand, a variety of economic and political issues have
delayed a project agreement. Indian officials have made it clear that any import pipeline crossing
Pakistan would need to be accompanied by a security guarantee from officials in Islamabad. Due to the
uncertainties involving this pipeline, the Indian government’s 11th Five Year Plan does not project any
gas supply from this route or the following two discussed pipelines.

Turkmenistan-Afghanistan-Pakistan-India Pipeline
India has worked to join the Turkmenistan-Afghanistan-Pakistan Pipeline (TAP or Trans-Afghan Pipeline).
With the inclusion of India, the project consists of a planned 1,050-mile pipeline originating in
Turkmenistan’s Dauletabad natural gas fields and transporting the fuel to markets in Afghanistan,
Pakistan, and India. In 2008, all parties agreed to induct India as a full member into the project, thereby
renaming the pipeline TAPI. TAPI is envisioned to have a capacity of 3.2 Bcf/d, but work has not yet
begun on the project. Concerns about the project have included the security of the route, which would
traverse unstable regions in Afghanistan and Pakistan. Furthermore, a review of the TAPI project raised
doubts as to whether Turkmen natural gas supplies are adequate to meet proposed export
commitments.

Imports from Myanmar

A third international pipeline proposal envisions India importing natural gas from Myanmar. In March
2006, the governments of India and Myanmar signed a natural gas supply deal. Initially, the two
countries planned to build a pipeline crossing Bangladesh. After indecision from Bangladeshi authorities
over the plans, India and Myanmar studied the possibility of building a pipeline that would terminate in
the eastern Indian state of Tripura and not cross Bangladeshi soil. In March 2009, Myanmar signed a

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natural gas supply deal with China sourced from a field invested in by GAIL and ONGC, putting any India-
Myanmar pipeline deal in question.

Liquefied Natural Gas

India began importing liquefied natural gas (LNG) in 2004. In 2008, India imported 372 Bcf of LNG, nearly
75 percent of it from Qatar, making it the sixth largest importer of LNG in the world. India imports LNG
through both long-term contracts and spot shipments. Currently, India has two operational LNG import
terminals, Dahej and Hazira. India received its first LNG shipments in January 2004 with the start-up of
the Dahej terminal in Gujarat state. Petronet LNG, a consortium of state-owned Indian companies and
international investors, owns and operates the Dahej LNG facility with a capacity of 5 million tons per
year (mtpa) (975 Bcf/y). India’s second terminal, Hazira LNG, started operations in April 2005, and is
owned by a joint venture of Shell and Total. The facility has a capacity of 2.5 mtpa (488 Bcf/y), which
may be expanded to 5 mtpa (975 Bcf/y) in the future. The 5 mtpa (975 Bcf/y) LNG processing plant in
Dabhol continues to face delays. Currently operating as a power plant, the LNG receiving terminal may
be operational in 2011 after dredging operations are complete so that a breakwater can be built. In
addition, Petronet LNG has begun construction of a 2.5 mtpa (488 Bcf/y) LNG import facility at Kochi.
The facility is expected to be completed in the first quarter of 2012 and has secured a 1.5 mtpa (293
Bcf/y) supply from Australia’s Gorgon LNG project.

In order to secure supply of natural gas to India and meet growing demand, India is currently looking to
invest in liquefaction projects abroad. For example, ONGC and the UK-based Hinduja Group are
considering service contracts in Iran to supply 5 mtpa (975 Bcf/y) of LNG to India. The country is also
exploring the possibility of investing more in the Sakhalin I LNG project. Long-term growth in demand for
LNG remains unclear however, as price is an issue of contention in India and increasing domestic natural
gas production is expected from eastern offshore fields.

Industry analysts note that Indian companies appear unwilling to commit to long-term LNG supply
contracts at international prices. While negotiations are currently underway for several long-term LNG
supply deals, whether or not India’s bids will be accepted is questionable in light of the low prices that
India has offered to pay. Instead, India is becoming an important destination for spot LNG cargos.

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Unconventional Natural Gas
Coal bed Methane: Prognosticated CBM resource has been estimated to be around 4.6 TCM.
Having the 3rd largest proven coal reserves and being the 4th largest coal producer in the world, India
holds significant prospects for commercial recovery of CBM.

The studies for delineation of blocks for prospecting / exploitation of Coal bed Methane (CBM) have
been carried out for Jharia, Raniganj, East Bokaro, West Bokaro, North Karanpura and Sohagpur
coalfields by Central Mine Planning & Design Institute (CMPDI) at the instance of Ministry of Coal and
Directorate General of Hydrocarbons (Ministry of Petroleum & Natural Gas).

Each of the above coalfields has been divided into two categories in regards to prospecting /
exploitation of CBM as given below :

"YES AREA" : where CBM operations can be taken-up.

"MAY BE AREA": where coal mining may be taken up beyond Xth Plan period.

Hence, these blocks can be released for Coal Bed Methane only in future subject to consent of
concerned coal company / CIL.

Salient features of the delineated area based on preliminary studies are summarised in Table.

It would be seen from Table that a total of 1924.42 Sq. Km have been delineated as "Yes Area" which is
available for CBM exploration and exploitation in above mentioned coalfields. Based on these studies,
Ministry of Petroleum & Natural Gas is likely to invite global bids for exploration / exploitation of CBM in
India.

A. For " YES AREA "

Coalfield Area (Sq.km) Coal Reserves (in Billion tonnes)

Jharia 65.31 6.06

Raniganj 232.40 4.31

East Bokaro 62.50 2.62

West Bokaro 35.67 1.07

North Karanpura 340.54 8.52

Sohagpur 1188.00 10.69

Total 1924.42 33.27

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(Reserves considered are in coal seams having thickness more than three metre)

B. For "MAY BE AREA"

Coalfield Area (Sq.km) Coal Reserves (in Billion tonnes)

Jharia 21.55 1.24

Raniganj 4.1

East Bokaro 22.63 1.64

West Bokaro 18.20 0.52

Sohagpur 27.90 0.43

Total 94.38 3.83

(Reserves considered are in coal seams having thickness more than three metre)

C. Total Area (Yes & May be Area)

Coalfield Area (Sq.km) Coal Reserves (in Billion tonnes)

Jharia 86.86 7.3

Raniganj 236.50 4.31

East Bokaro 85.13 4.26

West Bokaro 53.87 1.59

North Karanpura 340.54 8.52

Sohagpur 1,215.9 11.12

Total 2,018.8 37.31

(Reserves considered are in coal seams having thickness more than three metre)

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Gas Hydrates

Buried deep along India’s 7,500 km of coastline is a vast fuel reserve that can meet our needs for several
centuries. Global reserves of gas hydrates. Gas hydrates are estimated to be “twice the known oil and
gas reserves of the world”. According to DGH, India has around 1,894 TCM of prognostic reserves of gas
hydrates off the country’s east coast.

Gas hydrate is methane gas trapped in a cage of water molecules. These have been found in Krishna
Godavari, North East Coast, Mahanadi and Andaman basin. The commercial production of methane
from gas hydrates is still a far fetched thought although NGHP has set itself a deadline of mid 2015 as
the time to commence commercial production

Shale Gas

The shale gas exploration in India is relatively new but rapidly gaining attention of the industry players.
The shales in Gondwana & Cambay basin have been field experimented for evaluating the shale gas
potential. Initial results are found encouraging and at par with US producing shales. Hence it has opened
vast geographical and stratigraphic frontiers for shale gas exploration. The real challenges in exploitation
of shale gas lies in drilling of customized multilateral wells and completing it. The stimulations with
water frac with deeper perforations, appropriate proppants and flowing gas at low pressures pose a
challenge technologically without affecting the economics.

However the vast resource base coupled with rise in demand for gas and appropriate market prices
make the time right to explore & exploit this resource on equal priority. Also, the longitivity of the
productions makes up for the low volumes.

Oil and Natural Gas Corporation (ONGC) will spend Rs 100 crore to drill four wells by the end of the year.
In theory, India possesses large shale deposits across the Gangetic plain, Rajasthan, Gujarat and other
coastal areas. But none of these have been explored for gas yet. The long-term success of shale gas in
India depends on two factors -- technology and policy changes.

If shale gas is discovered, cutting-edge technology is required to ensure that it is economically viable to
extract. Reliance Industries’ recent partnership with Atlas Energy will give it exposure to such
technology.

In addition, the government will have to develop a comprehensive shale gas policy and conduct relevant
licensing rounds. The industry will gain if firms are allowed to search for shale gas in new or awarded oil
and gas blocks.
According to DGH the development of shale gas resources would be done in three phases:

 Phase-I (Sept.2007 to October 2009): The contract for the implementation of the oil shale
project was signed in September, 2007 between DGH and a consortium comprising BRGM,
France and MECL, India. The project envisages assessment of oil shale resources in three
discrete adjacent blocks, covering a total area of about 250 sq.km. in the states of Assam and
Arunachal Pradesh.
 Phase-II (November 2009 to October 2011): include financial, technological and environmental
assessment of the fields.
 Phase-III (November 2011 to June 2012): Announcement of first round of bidding for oil shale,
sale of data package, opening of data rooms, receipt of Bids, evaluation of Bids, award of Blocks
etc.

Tight Gas

Tight Gas - as known popularly, constitute a huge resource potential contained in the poor quality
reservoirs. The only parameter which classifies a reservoir to be tight is its permeability below or equal
to 0.01mD.

Tight gas potential prospectivity has been carried out by geoscientific evaluation of different basins of
India. The noticeable perspectives appear to be the Bhuvanagiri Formation (permeability of 0.033mD)
and Mandapeta sandstone (permeability of 0.01mD) in the Cauvery and Krishna-Godavari basins
respectively both of which are established producers. Significant gas reserves are likely to be locked up
in the tight reservoirs in the Vindhyan Basin. The Jabera well flowed gas @2000m3/d but reservoirs
were found tight because of silica fillings and quartz overgrowth.

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DEMAND OF NATURAL GAS

Natural Gas is the third most consumed fuel in the world after oil and coal, with a 24% share in the
world energy consumption. India’s association with natural gas dates back to 1886 when oil and gas
were first struck at Digboi, Assam. But the gas market evolved rather slowly, due to inadequate
production and supplies and until recently India accounted for just 0.5% of the World’s total natural gas
reserves. The situation changed dramatically after the discovery of a massive oil and gas field off the
western coast, Bombay High, which went into commercial production in 1976. This was soon followed
by the South Basin free gas field in 1978. The 1700 km long, 18.2 MMSCMD) capacity, Hazira-Bijaipur-
Jagdishpur (HBJ) Cross-country gas transmission line was completed in 1988. This linked Bombay High
and Basin with the fertilizer, power and industrial consumers in Western and Northern India. The
distribution of natural gas was done by Oil India Limited, the first company to start the sale and
distribution of gas in Assam in sixties. Later on, the major gas supplies began flowing in the mid 1980’s
by the national oil company, Oil and Natural Gas Corporation (ONGC) and transported and marketed by
the state owned Gas Authority India Limited (GAIL). The power and fertilizer industries emerged as the
key demand drivers for natural gas due to the scale of their operations, policy intervention and social
impact. In an agrarian economy such as India’s, the priority was the manufacture of fertilizers. More
than 58% of natural gas through the HBJ pipeline is used as feedstock in fertilizer plants, replacing
naphtha. However, the share of the power sector has been ramped up in the last decade. Another
application to emerge is the use of CNG for vehicles to replace liquid fuels, as urban pollution grows to
alarming levels. Low prices encouraged excessive consumption in almost every industry and soon
demand for gas outstripped supply. And finally the gas shortage emerged and by the end of 1990’s by
some estimates, nearly half of India’s gas demand was unmet. Along with the demand outstripping
supply, there was a major financial crisis in 1991, brought on by a burgeoning public debt. In response to
this gas supply shortfall and financial crises government of India took several steps to increase the
production and availability of natural gas. The most important one was the enactment of New
Exploration Licensing Policy (NELP), which allowed private players to bid for oil and gas exploration
blocks, and to construct liquefied natural gas (LNG) import terminals. The tax rules were relaxed and
more freedom was given to these private players to encourage their participation. These reforms have
yielded fruit. In 2002, Reliance Industries Limited announced a 14 trillion cubic foot (Tcf) gas field off the
east coast of India, increasing India’s available gas reserves by nearly 50%. Other large fields have since
been announced by the Gujarat State Petroleum Corporation (GSPC)4 and ONGC respectively. In 2004,
India’s first LNG facility (Petronet – Dahej LNG) began operations, with a second (Shell – Hazira LNG)
opening in 2005. Fig. shows the several major projection of Indian gas demand for the year 2020.

There three major gas consuming sectors i.e. fertilizer consumers, industrial consumers and power
sector. We can see from the fig. Below that these three consumers account for approximately 95%of the
current demand. Other users include the natural gas for transportation and domestic consumption.

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Sector Wise Demand Analysis

Fertilizer sector:
The importance of the fertilizer sector in India need hardly be emphasised as it provides a very
vital input for the growth of Indian agriculture and is an inevitable factor that has to be
reckoned with in the attainment of the goal of self-sufficiency in food grains. Through the 1980’s
and early 1990’s, Indian government encouraged construction of fertilizer plants along the HVJ
pipeline that connects gas fields in the west with the major consuming sectors to the interior to
Delhi, and provided these plants with inexpensive gas. As a result India has been able to achieve
self sufficiency in the fertilizer sector; however the shortage of natural gas leads to the
production of fertilizer with oil derived naptha.

The energy requirement in Gcal/Mt urea.

1 2 3 4 5 6

2005 6.16 5.67 7.74 9.26 6.96 5.25

2010, 2015, 2020, 2025 6.16 5.67 5.67 6.00 5.67 5.25

Source: Fertilizer statistics, 2006 .

With the projected demand and new gas supplies coming from Reliance and other private suppliers in
the near future, the Department of Fertilizer stated their decision of switching all plants to natural gas
rather than naptha or any other fuel oil. India has announced that it will give its fertilizer sector top
priority for the allocation of natural gas from the key offshore Krishna-Godavari Basin, according to a
United Press International (UPI) report and an official of India’s Petroleum and Natural Gas Ministry. The
reference projections assume a 95% domestic self-sufficiency requirement, a mix between government
supplied cheap gas and private gas, and slowly increasing farm gate fertilizer prices. Strongest driver of
natural gas demand in India is likely to be fertilizer import policy because imports are expected to out
compete domestic production to the extent they are allowed into the market. The fertilizer model also
tracked the quantity and allocation of subsidy needed to be paid by the central government under each
scenario. We can conclude that the gas demand from fertilizer sector driven by two main factors. The

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first is the willingness of the central government to allow imports of fertilizer. The Oman project – being
located in a foreign country, but partially owned by Indian companies – offers a compromise between
the desire for self-sufficiency and the need to reduce the cost of production. If the current political
fashion towards self-sufficiency remains, then the Indian fertilizer sector could consume very large
quantities of gas into the future.

Industrial Sector:
Industrial consumers that are connected to gas supply infrastructures could potentially emerge as major
consumers of natural gas in the future. These consumers used to face difficulty securing reliable supplies
of natural gas, but with the increased availability of gas in the near future, industrial consumers will have
the option to purchase gas from private suppliers. Figure 5 below summarizes the major natural gas
consuming industries in 2006.

Distribution of Industrial Gas Demand, 2006

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The projected gas demand of the industrial sector for the year 2025 is shown in the fig. below.

Projected Realizable Industrial Natural Gas Demand, 2025

We can see clearly from the above fig that natural gas is technically capable of meeting all but small
demand of industrial natural gas demand. But the major constraint on natural gas is its high price
relative to the cheaper option of coal.

Industrial Natural Gas Demand Curve, 2025

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The demand curve for industrial gas demand suggests two important things. First, significant additional
natural gas could be consumed by the industrial sector if gas prices were low enough that gas could
compete directly with coal. Second, demand for natural gas is highly inelastic at prices above about
$5.00/mmbtu. This is largely because in this price range, most switching is from oil to natural gas; even
at very high natural gas prices, gas is more economic than oil.

Power Sector:
Electricity sector accounted for 35% of natural gas consumption in 2005. High share of electricity sector
is on account of government policies which gave it priority in gas allocation. The analysis of electricity
sector assumes only marginal increase in the nuclear power over the coming decades as India is still in
discussions with the US to develop framework that would provide nuclear technology and fuel to help
India’s nuclear sector to expand and the contribution of hydroelectricity is also not too dominant

Projected Electricity Generation Mix, 2005-2025

As the projections indicate, coal is expected to maintain its dominant position in the Indian electricity
mix (69% in 2005 vs. 58% in 2025). Cheap domestic coal, as well as the increased availability of imports,

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makes it very difficult for alternatives like natural gas to compete with coal in this market. The share of
natural gas does increase from 11% to 18% of the electricity market – much of this fuelled by the new
gas supplies projected to come online by 2010 from Reliance and other private suppliers. As gas
becomes more costly as domestic supplies are exhausted, coal is increasingly favored in the power
sector, reflected in the decline in gas’ share of power generation between 2020 and 2025.But as natural
gas is cleaner fuel than coal, the shift from coal to natural gas is desirable. As Figure indicates, natural
gas plays a much more prominent role in the electricity mix under this scenario, nearly doubling in
capacity. In addition (not pictured), nearly half of the coal capacity under this scenario is equipped with
flue-gas desulfurization in order to comply with the sulfur restrictions.

Comparison of Electricity Mix between Reference and Stringent Sulfur Scenarios

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 Natural Gas Consumption Across Major Modelling Runs

The reduction in the sulfur gives the bright future for natural gas. While half of the sulfur reductions are
met by the installation of flue-gas desulfurization on the new coal plants, about 40% of the reductions
are realized by fuel switching from coal to natural gas.

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Total Indian Gas Demand
From the analysis of the different consumers of gas, we may assume that with the given priority to the
fertilizer sector the fertilizer producers will be able to utilize as much as gas they can consume. We then
removed this consumption from available gas to the power sector. And the rest of the available gas will
cater the need of industrial requirements and domestic requirements.

Projected Natural Gas Demand (2005-2025)

Above figure depicts the projection for gas demand under high and low reference scenarios. The High
Gas scenario assumes stringent sulfur constraints in the power sector, protectionist constraints on
fertilizer imports, and high economic growth driving industrial gas use. The Low Gas scenario assumes
vigorous coal sector reforms, liberalized fertilizer imports, and low economic growth slowing industrial
gas demand.
 Indian Gas Supply and Demand Projections

Above figure indicates, the supply projects being developed in India today will be sufficient to supply
India’s gas demand under all but the most aggressive growth scenarios. A proposed international
pipeline – from Iran, Turkmenistan, Bangladesh, or Myanmar – appears to be a risky endeavor, not only
because of security of supply concerns, but because it is unclear whether India can reliably guarantee
consumption of the gas. In addition, given that India has only recently begun aggressive efforts to
expand domestic exploration and production of gas, it seems likely that additional domestic supplies,
not shown in this figure, will materialize over the next 15 years. With such highly uncertain demand for
imports – due to uncertainty in both the domestic demand and supply – smaller LNG terminals,
constructed when excess demand is assured, appear to be a more rational supply strategy for India.

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REFERENCES

1) http://www.cmpdi.nic.in/cbm.htm
2) Country Analysis Brief by EIA.
3) http://www.cprm.gov.br
4) Shale Gas Exploration in India: Opportunities and Challenges - Ravi Misra ONGC, Dehradun,
India.
5) Tight gas potential in Indian sedimentary basins - Ravi Misra, ONGC, India (India).
6) http://www.dghindia.org
7) http://www.sitienergy.com/history.htm
8) The future of Natural Gas: An interdisciplinary MIT study.
9) Natural gas demand and supply long term outlook to 2030 by Eurogas.

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