May 11: The past few months have seen an unprecedented situation in India’s natural gas market.
Reliance Industries, which has started producing gas from the KG-basin is operating at less than capacity. Two thousand kilometers away, in Gujarat, there is a similar situation.
Petronet LNG, which imports natural gas, has stopped buying liquefied natural gas from the spot market — effectively cutting imports. “We can import up to 11 million tonnes of liquefied natural gas annually, but we are currently operating at just 7.5 mt,” says Mr Prosad Dasgupta, managing director and CEO, Petronet LNG.
The company hasn’t picked up a single cargo of LNG on the spot market for over six months now, he adds. It is not demand, which he blames, but infrastructure bottlenecks. A recent report by rating agency ICRA says that infrastructure bottlenecks — not enough pipelines —have led to this situation.
India’s natural gas production touched a level of 145 million cubic meters/day (mmscmd) by the end of FY10 – a jump of almost 70 per cent over the previous year. The increase has largely come from the KG-D6 field operated by Reliance Industries.
A Mumbai-based brokerage house, Nomura, in a report on the sector says that India’s gas production could have doubled if infrastructure to move it were in place. Lack of clear policies is keeping investors away from the natural gas sector, says the brokerage.
India’s natural gas supplies are expected to increase significantly — ICRA estimates supply could reach 230 mmscmd by 2018-19. This will be largely due to increased domestic production from new discoveries — such as RIL’s in KG basin. Nomura is even more optimistic — it expects natural gas supplies to touch 300 mmscmd. There is enough demand potential from power, fertilizer and other sectors.
However, going by the uncertainty of some policy issues, the broker sees a problem in getting new investments in the sector. For instance, half of oil and gas blocks put on auction in the latest round of NELP didn’t generate interest.
The recent court judgment on the RIL-RNRL case may keep foreign investors away, “though NELP provisions allowed marketing freedom, the government’s gas utilisation policy curbs this freedom” says the brokerage firm.