From Business World of 29 November 2004. The government owns Gas Authority of India; to favour it, the government has kept reins on the gas market. That has been bad for the country, for gas is a cheap, convenient fuel, and India is only a thousand or two miles away from enormous gas hoard in the Persian Gulf.
The coming age of gas
In April-September, India consumed a mere 87,000 tons of
gas, against 4.1 million tons of petrol, 4.5 million tons of kerosene, and 19.1
million tons of diesel oil. And yet, government companies are preparing to
unload millions of tons of gas in India. GAIL has a 5mt gas terminal in Hazira
on the coast of Gujarat which feeds the pipeline to Jagdishpur in Uttar
Pradesh; it is about to float tenders to double the capacity of the terminal to
10 million tons. It is planning another 2.5 million ton gas terminal in Cochin,
to be expanded later to 5 million tons. GAIL is also the preferred buyer of gas
from Burma’s A1 block and has a share in its A3 block. It has decided to lay a
pipeline to connect Jagdishpur to Haldea in West Bengal, and is looking to
bring the gas from there over to India; it has just asked Snam Progetti to tell
it which is the best way of doing it – bringing it overland through Tripura or
through Bangladesh, liquefying it and shipping it, or laying a deep-sea
pipeline landing it in Haldea. ONGC has big plans for Mangalore where it bought
the Birla refinery: it is planning to build a 12 million ton gas terminal
there. Reliance has found huge reserves of gas in its D6 field in the
Krishna-Godavari basin offshore. Shell has a licence to build a gas terminal in
Dahej. It has a problem with Essar which is supposed to be its partner but has
no money to invest. But it is only a matter of time before Essar can be enticed
to cooperate; that will lead to another 5 million ton gas terminal. So we are
looking at something like 40-50 million tons of gas being landed on India’s
coasts in ten years’ time. Compare this with the current hydrocarbon
consumption of 80 million tons. Even if it doubles in a decade, we are looking
at gas making up a fifth to a quarter of hydrocarbons consumed in a decade’s
time. Who will consume it, and for what?
Reliance is pretty clear about
the answer for its own gas. It would use some of its gas to make petrochemicals
– fibres and plastics; but it is looking for big markets in power. It has plans
for a 1500mw plant in Dadri, and looking to supply gas to two 1300mw plants of
National Thermal Power Corporation in Kawas and Gandhar. The electricity market
is pretty messed up; power prices are unremunerative, farmers get power free so
everyone wants to call himself a farmer, and it is difficult to collect money
from customers, especially if they are government-owned. But Reliance
presumably thinks it has the size and the muscle to bring governments to heel.
GAIL, which till now has sold mainly to power and fertilizer plants, is fed up
of both – of the price controls and the trouble in collecting money. It is
building a plant in Kasargode in Kerala to make 800,000 tons of ethylene and
400,000 tons of propylene; that should take care of the first stage of its
terminal in Cochin. In comparison, its proposed 100,000 ton high-density
polyethylene plant in UP is peanuts. It hopes to build a styrene butadiene
rubber plant in Haldia; but that too will take only a small part of its gas.
ONGC is planning to lay a pipeline from Mangalore across to Bangalore and
Madras, and hopes to find customers on the way.
Thus, the gas plans of companies
are big, and are no doubt giving them big headaches about the market. Even more
gas could be landed if only the market could be found. Could it? It could – if
markets were unified and freed, and if taxes were moderated. Power offtake
cannot really take off unless the final consumer of electricity is freed from
the monopoly that state governments have over him. The Electricity Act promised
to free him, but state governments are determined to defeat it. Fertilizer
cannot take more gas while it is controlled; no new manufacturers will come in
unless they are given free access to the farmer. Synthetic rubber will not take
off as long as the government keeps protecting the natural rubber producers of
Kerala. And synthetic fibre cannot clothe India unless the finance ministers
can resist the temptation to tax it and to favour cotton. After almost 15 years
of reforms, the markets for power, fertilizer, rubber and petrochemicals await
some basic liberalization before the market for gas can take the gas that is
only waiting to come to India.
