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Gas is always greener

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The 2002 discovery of KG-D6 natural gas reserves by Reliance has awakened India to the potential of natural gas in recent years. Today India is finally investing heavily in LNG terminals, gas pipelines, city gas distribution (CGD), compressed natural gas (CNG) and liquified petroleum gas (LPG), and many established Indian players are using such plays as a way to diversify their domestic business in the face of government subsidies on petroleum products.

BC Tripathi, chairman and managing director, GAIL

The state-owned gas and infrastructure giant GAIL is involved in most of India's major infrastructure projects to increase its gas import capacity. According to GAIL's chairman and managing director BC Tripathi, the main "benefit GAIL has provided to India is in the development of its gas industry. When GAIL's first project started in 1984, India didn't have the necessary technology, consultants, or materials providers (such as pipes, compressors, and valves). Today India is one of the largest exporters of pipes in the world, having almost 25% share of the world pipes industry. The same happened in the construction industry: India had no contractors in 1984. When you look at the various equipment suppliers (such as gas turbines, compressors, wags), any item required in the industry is now produced in India and exported elsewhere". As a result, the "contribution that GAIL has provided to India over the last 25 years, apart from building the backbone infrastructure to the industry and supporting the energy supply, is the development of the Indian oil and gas value chain." The growth in GAIL's turnover has impacted directly on its investments, "In the last 25 years GAIL had an accumulated turnover of $5.5 billion USD, but we are going to achieve more than that in the next four years. The company currently has almost 4970 miles of pipelines and we are going to have 9320 miles by 2014/2015, almost doubling the available infrastructure."

BC Tripathi, chairman and managing director of GAIL

Petronet LNG is an example of the emphasis placed by the government of India on increasing the country's energy supply through gas. The company constitutes an effort to bring together four major public sector undertakings (PSUs) to start a new business in LNG, a field where India had no real experience, technology, or expertise. "This was in 1998. The four companies – ONGC, IOCL, BPCL, and GAIL – came together, and to have access to the necessary technology, GDF SUEZ was taken as a strategic partner. The Asian Development Bank also provided international support. In this period Petronet LNG has done pretty well. The company has the biggest re-gasification plant in the world and we have been awarded the largest LNG sourcing contract," explains AK Balyan, CEO of Petronet.

Petronet set up India's first LNG receiving and regasification terminal at Dahej, Gujarat, and is in the process of building another terminal at Kochi, Kerala, both on India's west coast. While the Dahej terminal has a nominal capacity of 10 million tons per annum (MTPA) the Kochi terminal will have a capacity of 2.5 MTPA.

Pipelines in Rajasthan, Courtesy of Cairn India

However, there are challenges to delivering the gas India so desperately needs. Balyan explains why. "Petronet LNG needs to have reasonably priced and affordable gas to make it available to a billion people and that is a challenge. The world gas scenario is very volatile and filled with uncertainties. So one thing we are working on is to have sustainable, long-term contracts at reasonable price levels, to be able to import and bridge the gap between demand and supply."

Rajesh Vedvyas, managing director, IGL

Vikram Singh Mehta from Shell complements Balyan's comments; "You cannot produce gas without infrastructure in place to support the market. That means power plants must be constructed, fertilizer plants must be constructed, and more. Demand is potentially huge, but you have to facilitate the demand." Even so, Shell and its partner Total have built the $700 million USD Hazira Terminal, which includes an LNG storage and regasification terminal with a fully functioning port. The industry hopes that current investments in infrastructure will facilitate the access of oil and natural gas to a largely unattended industry and population; LNG's current prices will help make it more competitive in a coal abundant, though extremely polluted, country.

Rohit Singhal, chief executive officer (India), Fernas Construction Company

If finding major buyers looks challenging, try delivering fuel directly to more than a billion people who are urbanizing at record speed, with a 300 million-strong middle class growing in size and purchasing power. This is what companies such as Indraprastha Gas Limited (IGL) are doing. Their main achievement, as its managing director Rajesh Vedvyas highlights, "has been to expand IGL's infrastructure so as to meet the ever growing demand. When I entered the scene there were long queues at Delhi's compressed natural gas (CNG) stations, so I took as my first task the expansion of the infrastructure at a rather fast pace to allow consumers to conveniently refill their vehicles. In a matter of two years IGL has built about 80 CNG stations from an initial base of 160, and another 40 are under construction. There is a huge jump in the infrastructure so as to make CNG refueling a pleasant experience for our consumers."



Thanks to the enforcement of incentive laws and the obligation for all public transport to run on CNG, the pollution levels in Delhi have diminished considerably, though there is still a long way to go. Vedvyas expects that in five years IGL will be at least four times bigger than today in terms of turnover. "Last year IGL had revenues of around $300 million USD, but our target for 2015 is to become a $1 billion USD company."

IGL is also growing quickly in PNG city gas distribution (CGD), though Delhi's wide acceptance of this clean alternative has not been a norm in India. "At the moment we have 40 Indian cities where CGD has been rolled out in the last five years, but in most of these cities, CGD business has not taken off in real terms. There are issues that need to be addressed before the PNGRB tries to implement CGD in 200 plus cities they are planning to. Even cities like Delhi and Mumbai still have unresolved issues. The PNGRB needs to act as a facilitator to resolve these problems first before expanding the CGD business on such a large scale. Unless they do that, it is doubtful that CGD business can be successfully launched in other cities." Again, the problem is not lack of demand, but how much large and small consumers are willing to pay and how much the government is willing to subsidize or enforce the use of cleaner fuels.

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Fernas, a Turkish construction company, entered the Indian market explosively 2 years ago through the medium of oil and gas, winning pipeline contracts with GAIL, IOCL, and ONGC's Petro Additions Ltd. It is already looking to diversify its portfolio in India, firstly through power and road projects, but also through city gas distribution, an area where the company has experience as the owner and operator of city gas distribution in the Turkish city of Diyarbaker, where it supplies gas to more than 100,000 consumers.

As CEO of Fernas India Rohit Singhal explains, this would mark a shift in the strategy of Fernas in India so far: "City gas distribution is going to be another area where we may compete as an operator, rather than just as a constructor. The company outside India, especially in Turkey, has moved away from construction to asset ownership. We want to follow a similar strategy in India." It seems that despite the challenges of bringing gas to such an enormous market, including the logistical challenges of bringing gas to new cities and the legislative challenges still being faced regarding distribution rights for new cities, there are companies in India today willing to brave the challenges and seize the opportunities.

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