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May 2008 |
Issue #39 |
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India Gas Market & Market Liberalisation India is a rapidly developing economy which is having a significant impact on the Indian energy sector. In this article we aim to provide a background study of the India gas market. Players Involved The two main firms involved in exploration and production of natural gas up until the 90s when India started to introduce competition were Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited (OIL) both state owned firms. ONGC operating mainly along the western off-shore area of India as well as within other states, and OIL operating within Rajasthan and Assam states; other players now involved in E&P are the Joint Venture (JVs) consortiums and private investors in fields in Tapti, Panna-Mukta and Ravva being the other main producers. In the mid 80s the government set up the organisation now known as GAIL India Limited (prev. Gas Authority of India Ltd), this firm was set up by the government to help achieve sustained development of the gas market in India, GAIL is currently the primary transmission and marketing company in India, owning approximately 4,600 km of pipeline a growing number out of a national total of about 6,500 km, the transmission and distribution sector is currently open to private investment. The regulatory groups involved in the market are currently the Ministry of Petroleum & Natural Gas (MOP&NG) who regulates the allocation and pricing of gas produced by ONGC and OIL, while private investors/JVs and the New Exploration Licensing Policy (NELP) gas production is controlled by the government and appropriate operators. Background Info into the gas market In 2006, total proven gas reserves were said to be at 1080 bcm (BP Statistical Review 2007), of this total approximately over 70% of this gas is produced offshore, most of which can be found on the west coast. Despite recent discoveries in 2005 in which ONGC discovered 3-6 Tcf of gas reserves in the Krishna-Godavari basin, amongst other less significant discoveries in various states, indigenous production of natural gas is not sufficient to meet growing gas demands of a large developing country. To meet this shortfall India is processing future proposals to import natural gas through pipelines from Iran; Bangladesh, Myanmar, and Turkmenistan, LNG imports will also play their part from the usual culprits of Qatar and Iran. To further support the LNG process, state owned as well as private owned firms are setting up various new terminals and re-gasification units. Current developments include Petronet LNG Ltd setting up a terminal in Dahej, Gujarat with a capacity of 5 mmtpa, whilst also being in the process of setting up another terminal in Kerala, Kochi with a capacity of 2.5 mmtpa. Shell India also has a LNG terminal in Hazira, Gujarat, whilst other developments are being mooted for Dabhol Power in Mangalore, Kakinada, Ennore, Dabhol and Trombay. GAIL is India’s main gas transmission, supply and distribution company, being the owner and operator of India’s largest transmission network of around 4,600 km of pipeline. ONGC is one of the other major players involved in supply and distribution, as well as some other private players. Currently there is no regulatory framework in place for gas transmission, however the Regulatory Board Act, will regulate the transmission and distribution of natural gas.
India’s transmission networks are represented by inland cross country pipelines (Hazira–Vijaipur-Jagdishpur pipeline, Dahej-Vijaipur pipeline, and Dahej-Uran pipeline) owned and operated by GAIL, as well as having a number of regional pipelines owned and operated by GSPC and AGCL, and in development Reliance Industries Ltd is laying a cross country pipeline from KG basin on the East Coast to the western coast. There are also plans for a construction of a ‘National Gas Grid’ to connect gas supply points from NELP fields, along with imported LNG, these plans would include the expenditure of about $4.5 billion for the construction of about 7,000 km of pipelines to be put in place for the near future.
In terms of access to these pipeline facilities, the access is based on the contractual agreements in place between parties, open access is currently limited and is controlled by the contracts currently in place and this would be the same for third party access (TPA) as well. GAIL regulates access to the gas transportation system on a commercial basis as far as supply to its pipelines is concerned. The Regulatory Board Act gives the board power to regulate open access and transportation rates for the common carrier or contract carrier. Currently the different pipeline networks are not interconnected, however it has been proposed under the natural gas pipeline policy that all pipelines ought to be on a non-discriminatory open access basis. Transport tariffs are approved via the government’s permission, however due to the introduction of the Petroleum and Natural Gas Regulatory Board (PNGRB) transportation tariffs for common or contract carrier pipelines and city or local gas distribution networks will now be regulated by the PNGRB. For example, GAIL has been marketing gas produced by the ONGC at administered prices regulated by the government, whilst JVs and private sector firms have been marketing gas at market prices. Liberalisation of Markets The Indian gas market is currently in a transition phase from a state-controlled industry to a market driven one, the main issues arising from this are the following:
The process of liberalisation in India began to start in the early 90s, and then further in the late 90s with the development of the New Exploration Licensing Policy (NELP) began. This opened up the market opportunities to private investors, with the aim of increasing domestic production of crude oil and natural gas. So far through this policy, 110 blocks have been awarded under five NELP bidding rounds; currently there are 57 blocks available for exploration of oil and gas, this breaks down into 19 blocks of deepwater, 9 blocks in shallow waters and 29 blocks on land. The development of the Exploration and Production sector has been significantly boosted by the liberalisation of this sector opening up to private and foreign investment (100% Foreign direct investment is allowed), the NELP provides a competitive base, a level playing field for private operators whether Indian based or foreign, both receiving the same fiscal and contract terms. So far expected investment through the first 6 NELP rounds has reached somewhere in the region of US $ 8 Billion with 49 discoveries being made by private/joint ventures in 15 blocks. As far as downstream liberalisation is concerned, there has been a lot of talk and expectation of the unbundling of markets; however it currently appears to be slow progress. The expectation is that the market structure will change, however, whilst new laws are still in draft format and yet to be agreed it doesn’t seem like we can expect much progress in the near future. In conclusion, although the upstream market has seen significant changes over the years through market liberalisation, the opening up of E&P markets to private investors have flourished because of this liberalisation. The downstream market is yet to make much progress on liberalisation and it is still a draft law. Researched and written by Tim Madden. |
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