We may gasp less for gas

Business Line, Chennai


The latest report card of the economy from the Finance Ministry has a lot to say about gas. Of interest to energy-watchers should be a section titled `Status of Development of Gas Discoveries' in the 72-page document titled, `Outcome of the review of the trends in receipts and expenditure in relation to the Budget at the end of the second quarter of the financial year 2006-2007 and Statement explaining deviations in meeting the obligations of the Government under the Fiscal Responsibility and Budget Management Act, 2003,' on the Ministry's site.

The review begins on an anxious note, that `the country's increasing import dependence for hydrocarbons with declining domestic production of crude oil and the hardening and volatility of crude prices in the international market have been sources of vulnerability.' However, `an encouraging development' has been `the news of gas discoveries in the Krishna Godavari (KG) basin under New Exploration and Licensing Policy (NELP) in recent months.'

Discovery spoken of in the review, in detail, is about the exploration block awarded to the consortium of Reliance Industries Ltd and Niko Resources Ltd during NELP I round. The first exploratory well resulted in a major gas discovery in May 2002, one learns. "The operator in this block has reported 12 more discoveries." Gas should be available from June 2008, it is anticipated. "Envisaged plateau rate of production is 40 million metric standard cubic metres per day (MMSCMD)."

ONGC is currently developing two fields in the KG basin, which are estimated to yield 2.1 MMSCMD gas for a period of 7 years. "Gas production of about 1.5 MMSCMD is expected to commence from March 2007." Estimates are awaited in the casa of Gujarat State Petroleum Corporation (GSPC) field, located offshore in KG shallow waters.

"With the new discoveries coming in, we could have as much as a hundred years of proven reserves in terms of reserves to consumption ratio, and even higher in terms of reserves to production ratio," says Mr Anish De, Associate Director, Transaction Advisory Services (Specialist - Oil & Gas), Ernst & Young. If the period looks long enough to be comfortable, Mr De adds a caveat that the estimate is subject to change over the years.

How so? "Firstly, our gas consumption is depressed due to shortages, and the unrestricted demand could easily be thrice of current consumption. This increase in consumption, once registered, would bring the reserves to production ratio down sharply," he reasons. Also, the gas finds, though large, are yet to be conclusively validated in terms of the exact size, points out Mr De. Which means, it is difficult to provide a representative indication of the reserves to production ratio.

"Going forward, this will also be a function of the gas prices," he foresees. "As of now the market features a variety of prices between APM (Administered Price Mechanism) gas, JV (joint venture) gas, R-LNG 9 (regassified liquefied natural gas) and spot prices. Once there is pricing congruence it would be easier to identify the representative ratios."

So, in the final analysis, can we breathe easy about gas? "The KG gas finds would put India in a very competitive position in the world gas markets," concedes Mr De. But he hastens to add a qualifier - that we price and use the resources efficiently and judiciously. "It will be important to ensure that, while preventing volatility, the gas prices in the Indian market do not restrict or prevent import of competitively priced gas or stymie investments into new discovery," Mr De insists.