GAS OUTLOOK: FUTURE AVAIALABILITY & PRICING

NATURAL GAS OUTLOOK: FUTURE AVAILABILITY & PRICING
(By Vikram Ispat )
Over the past few years, natural gas (NG) has been gaining importance as a source of
energy & Feedstock and has been able to garner almost 8 per cent share in total
energy consumption. This share would have been much higher provided there was
ample availability/Exploration of NG.
The NG consumption in various sectors, is as shown below
23.8
NG CONSUMPTION (%) 2006
37.8
(MMSCMD)
Power 37.8
Fertiliser 31.8
Sponge Iron / Steel 4.6
Others 23.8
Total 98
4.6
31.8
Power Fertiliser Sponge Iron / Steel Others
In the past, there has always been a shortfall of supply, with demand growth always
surpassing supply growth. In 2005-06, domestic natural gas production was around
88.2 mmscmd (million metric standard cubic metres per day) and demand was
assessed at around 97.3 mmscmd. This demand does not take into consideration the
huge quantity of unmet demand for gas. Therefore, the continued shortfall of natural
gas supply has forced many industries to resort to other high-priced alternative fuels
such as naphtha Propane furnace oil, LPG etc.
Due to non availability of NG, there was no major capacity addition in Gas based
Sponge Iron sector in spite of long term demand of HBI/DRI in line with promising
growth in Steel sector. Infact, existing all (3) Gas based Sponge Iron plants are
operating at lower levels due to non-availability of required NG. Also, time-to-time
priorities for NG allocation have changed I.e. supporting more on Power, Fertlizers &

Transportation sectors & virtually no support to Gas Based Sponge Iron sector. This
has resulted into large investments by GB Sponge Iron plants remain idle.
However now India’s NG map is set to transform in just 5 years, riding on the recent
huge discoveries within the country and plans for LNG imports. The petroleum ministry
has projected that gas availability in India is set to be more than double (increase by
157%) in next 5 years. This could alleviate the plight of major gas consumers in
Power, fertilizers & Industrial sector, which face huge loss owing to 60% shortfall in
availability.
Demand for Gas
140
126.57
120
MMSCMD
100
80
60
40
20
79.7
41.02
76.26
33.25
25.37
15
19.66
6
7.86
0
Power Fertilizers Petro chemical Industrial Sponge Iron
/Steel
07-08 11-12
It is estimated that India would have surplus of 16.5 mmscmd of gas within next 2 –3
years.

GAS - DEMAND/SUPPLY SCENARIO
300
250
MMSCMD
200
150
100
50
0
07-08 08-09 09-10 10-11
11-12
Supply 110.99 153.58 242.47 267.09 285.42
Demand 179.17 196.64 225.52 262.07 279.43
Supply
Demand
PRICING
NG PRICES RS/'000 SCM
9000
8000
7000
6000
5000
4000
3000
2000
1000
0
8124
6962
3088 3088 3200 3200
Prior July 05 jul 05-Mar 06 April 06 onwards
SPONGE IRON
FERTILISER, POWER, TRANSPORT
India is witnessing a transformation in the pricing scenario for natural gas. Indian gas
prices, since long, have been regulated and have remained low. While APM
(Administered Price Mechanism) gas is waning, gas availability from new discoveries
will start increasing from 2008-09. Hence, APM gas will not be able to support the
demand from the priority sector. In fact, additional demand for gas from the priority
sector will be met by the new discoveries. Under NELP, the government does not
have a control over prices. Only the pricing formula has to be approved by the
government. Hence, going forward, domestic gas prices will be market determined.
The differential pricing strategy being adopted by the government for APM gas
indicates that the government is taking initiatives to ensure that gas produced by

National Oil companies (NOCs) is market-determined. By 2011-12, the share of gas
produced by private players will increase to almost 77 per cent from the current 22 per
cent.
It is expected landfall prices of the newly discovered domestic gas to float at $4.25-
4.75 per mmbtu, and anticipate new LNG (other than Dahej) FOB prices (net back to
Middle East suppliers plus shipping cost) to be $5.0-5.5 per mmbtu. In this pricing
scenario, gas (domestic or LNG) will continue to be first choice for all sectors,as a
feedstock /Fuel.
Looking to country’s positive GDP growth rate, abundant natural resources of Iron
oxides & with huge proven discoveries of Natural Gas, supported with LNG imports,
Gas Based Sponge Iron Industry has huge potential for growth, if proper
policies are
framed for supply of Natural gas on long term & stable gas prices.
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