Sunday, December 6, 2015


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.