Natural Gas Annual Review June 2009

Supply mix to shift in favour of private players.

In 2008-09, firm natural gas supply available in India was estimated at 93.2 million metric standard cubic metres per day (mmscmd), of which around 74.4 mmscmd (80 per cent) was gas from domestic fields and the balance 18.8 mmscmd (20 per cent) firm LNG imports. Of the total gas supply in 2008-09, the share of Oil and Natural Gas Corporation Ltd (ONGC) and Oil India Ltd (OIL) gas was estimated at 56.1 mmscmd (60 per cent). In 2013-14, the supply of natural gas is expected to increase considerably, registering a CAGR of 18 per cent, to 215.2 mmscmd, primarily driven by gas supply from Reliance Industries Ltd (RIL)’s new discoveries. Conversely, supply of gas from ONGC’s existing fields that have matured is likely to decline. Hence, future gas supply is expected to be dominated by private/joint venture (JV) players. Currently, the country’s gas supply is dominated by administered price mechanism (APM) gas, which is supplied at a subsidised rate. Going forward, private/JV fields will dominate gas supply. Price of gas from JV fields is market-determined and governed by production sharing contracts (PSCs) signed with the government. The landfall price of RIL gas at $4.2 per million metric British thermal units (mmbtu) is sharply higher than the landfall price of APM gas at $1.8 per mmbtu. On the back of APM gas price increasing in the medium term, CRISIL Research expects the average gas price in India (delivered excluding sales tax) to increase from around $4.3 per mmbtu in 2008-09 to about $6.2 per mmbtu in 2013-14 - an increase of 44 per cent.