By OGJ editors
HOUSTON, Dec. 2 -- India has a bright long-term natural gas supply outlook, but the medium-term outlook is murky, said Fereidun Fesharaki, a senior fellow at the Honolulu-based East-West Center and president and founder of FACTS Inc.
The long-term outlook is supported by a series of significant discoveries during the last 2 years, including the world's largest hydrocarbon discovery for the year in 2002 (OGJ, June 9, 2003, p. 42).
A discovery by Reliance Industries Ltd., Mumbai, established major gas reserves on a corner of RIL's first deepwater block to be explored in the Krishna Godavari (KG) basin off India's east coast (OGJ Online, Nov. 7, 2002). RIL holds 90% of that discovery while Niko Resources Ltd., Calgary, holds 10% ownership.
Recently, the reserves were certified at just over 10 tcf, but the industry expects to recover more than that.
"Our understanding from those who have intimate knowledge of the geology of this
discovery is that 10 tcf is ultra conservative and with new drilling, the size of the proven reserve will rise by 50 to 100%," Fesharaki said. "There are high hopes of some 30-50 tcf of proven reserves, ultimately in this part of India."
The KG basin and the Bay of Bengal offer potential for future discoveries. Many companies are exploring for gas, including Oil & Natural Gas Corp., Gas Authority of India Ltd. (GAIL), and Cairn Energy India Ltd.
Future gas sales
The big question is what to do with new gas discoveries, Fesharaki said. The RIL gas is about 20 km from shore and can be delivered to onshore facilities relatively easily.
"This is bad news for the proposed Kakinada LNG terminal in eastern India. It is difficult for LNG to compete with this gas," he said (OGJ July 16, 2002, p. 68).
"The next option is to build a 1,000 km offshore pipeline to bring the gas to Hazira and connect to [India's main gas system] HBJ pipeline. This is a major investment commitment. The next question is what happens next after gas has reached HBJ pipeline," Fesharaki said.
Although strategic decisions are yet to be made, "it is likely that RIL will adopt a phased approach. Gas is likely to arrive in Kakinada first, and then go to Hazira. RIL is also likely to attempt to reach end users themselves," he said, adding that GAIL also is interested in building a pipeline to Hazira.
RIL may well try to buy out Niko's share of the KG discovery, he said, adding that RIL's philosophy is based on full ownership of upstream assets in India.
"Over the next decade, RIL may well be transformed to become predominantly a gas company, with refining and petrochemicals becoming a smaller part of its total operations," he said.
Bangladesh gas exports
The KG basin discovery has negative implications for Bangladesh gas exports. Many parties, including foreign gas producers, the US government, and the Manila-based Asian Development Bank have urged the Bangladeshi government to proceed with gas exports.
"The government is genuinely interested, but the issue is too much of a hot potato. Time after time, the government has taken one step forward and two steps back. The result is no progress. The Bangladeshi government was warned time and again that the window of
opportunity will close if they did not move, and finally they may have missed the chance," Fesharaki said (OGJ, Jan. 27, 2003, p. 18).
But he also notes that this does not eliminate the possibility of future Bangladesh exports.
"India's potential appetite for gas is huge. However, it means that there will be no export opportunities for a decade or so," he said, forecasting that Bangladesh gas exports would not come before 2010.
Meanwhile for gas producers in Bangladesh, things are looking more positive with domestic sales. All producers are selling gas to the government, and they are getting paid within 3-4 months.
"In the next few years, domestic sales are likely to reach 50% of the proposed gas export
project to India. The planned pipeline export project was based on delivery of 500 MMcfd for gas to the Indian border," he said.
LNG imports, prices
While the Dabhol terminal sits idle, construction efforts at Dahej and Hazira continue in earnest.
"Dabhol is a national asset and sooner or later, it will be bought and used by one or a number of players in India," he said. The first LNG imports will come to India by early 2004 from the Qatar-based Ras Laffen Liquefied Natural Gas Ltd. (RasGas), he said.
The Hazira terminal will be completed later in 2004, though it's unclear when Royal Dutch Shell Group subsidiary Hazira Port Pvt. Ltd.'s first cargoes will arrive in India (OGJ Online, Sept. 24, 2003).
The contract for India's government-owned Petronet LNG to build up supplies to 2.5 million tons by 2005 and full volume of 5 million tons by 2006.
"India's local gas prices have been very cheap. Those who have used domestic gas have been spoiled by the low prices of under $2/MMbtu ad are always seeking international prices that are unrealistic," Fesharaki said.
"Much like the crude oil prices that were raised to international levels, gas prices in India also must rise. Petronet's price is often seen as a marker price," he said.
The Petronet price at the ceiling level ranges from $4.70/MMbtu to more than $6/MMbtu depending on Indian national and local taxes and duties.
"Petronet is reported to be seeking to renegotiate the Rasgas contract price, but there may only be a little room to maneuver with a signed contract," he said.
Meanwhile, it's unknown what the price would be for RIL gas, for gas from Bangladesh, or even pipeline gas from Iran.
"Indian customers will eventually be forced to pay up to $4/MMbtu or higher for imported gas. This may well slow down the pace of potential demand for gas in India, but the government is unlikely to be able to wish the price lower. The government's pressure may shave off a little from the price the suppliers are now seeking, but India cannot escape the fundamentals of gas supply economics," Fesharaki said.
