Natural Gas Market in GujaratAssessing the Progress and Prospects

InfralineEnergy Business Report Series

Gujarat has been the hotbed of investments. With a GDP growth rate of 11.58 percent in FY 2011, the state is all set to become a focal point for economic growth in India. The government’s investor and industrial-friendly policies has led to the creation of a robust infrastructure and blos-soming of trade and business.

The major catalyst to the overall growth in Gujarat has been the availability and reach of natural gas to a greater part of the state. Industries, power sector, small and medium enterprises, trans-port, households and even the co-operatives, all are reaping the benefi ts of natural gas. Gujarat

houses India’s only two operating LNG terminals, and has access to multiple domestic gas sources, a state-wide gas grid of 2,000 kms and presence of a booming city-gas distribution business across many cities. Both the cross country natural gas transmis-sion pipelines operating in India cater to Gujarat and so would be three out of four pipelines which would be commissioned in the next 4-5 years. As a result, nearly 33 percent of power generation in Gujarat is gas based compared to a lowly 10 percent of the national average.

Many gas consumers in Gujarat have shown turna-round performances due to switching to natural gas from other fuels. Gujarat contributes 80 percent to India’s production of 500 million square meters of

tiles. Morbi, a small industrial town, has pioneered ceramic tile manufacturing at the SME level using natural gas for its furnaces. It is noteworthy to mention that while the Supreme Court directive was needed to initiate the CGD network in Delhi; the various stakeholders in Gujarat including the government, gas suppliers, consumers and gas pipeline players had themselves chartered the path to a gas based economy. The results are there for everyone to see. Natural gas has even reached the village level, with gas supplies reaching 11 villages in Anand district, showing the progress made in creating a robust and reliable gas infrastructure in Gujarat. The larger vision of the Gujarat Government is to connect further 100 villages to prosper rural Gujarat as well as 84 more cities in FY 2012.

India is rightly sitting on the brink of a natural gas revolution. With more than 70 percent of India’s crude oil needs being fulfi lled by imports, lack of energy densities in renewable energy solutions and the increasing carbon emissions from coal based power plants; natural gas is the most likely energy resource to surge ahead. In this regard, Infraline Energy believes that Gujarat can steer the way for the rest of the nation.

Owing to its strategic location, Gujarat is the most favoured destination for future LNG terminals. Three new LNG terminals are proposed to come up in Gujarat in future. Buoyed by the success of transporting more than 35 mmscmd of natural gas, GSPL has set a very aggressive target of connecting all the districts of Gujarat by a 2,200 km strong pipeline network. The company is also hoping on the possibili-ties of replicating the Gujarat Gas Grid in the neighbouring state of Rajasthan.

Though KG-D6 natural gas supply has been a boon to Gujarat, this alone would not suffi ce the burgeoning gas demand, which is estimated to touch 147 mmsc-md by 2020 in the state. However, Gu-jarat is not merely a powerful demand center. It is the second highest onshore gas producer in India after Assam. Cam-bay basin is one of the seven basins in India which could yield Shale Gas. Test wells drilled by GSPC and Joshi Tech-nologies have shown promising results. With multiple supply sources and a well-diversifi ed con-sumer base in the state, gas companies have considerable latitude in committing investments and deciding on future expansions. A natural gas exchange similar to Henry Hub in the United States can be set up in Gujarat. Natural gas storage and containing gas fl aring are other poten-tial investment models which can be taken up by various companies in Gujarat.

Key Highlights

The profi le of natural gas consumption in Gujarat

Assessment of availability and shortfall of natural gas in Gujarat

The critical drivers aiding in the development of gas market in Gujarat

A detailed study of the natural gas infrastructure in Gujarat

Gas market developments in Gujarat Natural gas based success stories across the entire spectrum of gas consumers

The evolution of rural CGD in Gujarat The prevalent gas pricing and gas transportation tariff in Gujarat

The estimated share of Gujarat from upcoming domestic sources of gas supply

The challenges that lie ahead in sourcing gas from various sources

Projected demand-supply scenario for natural gas in Gujarat

The new models of initiating investments in the natural gas sector in Gujarat

Key Questions Answered

Cost-benefi ts and paybacks associated with the natural gas business for various stakeholders

How have multiple sources of gas affected the business environment in Gujarat?

Feasibility of implementing gas price pooling

What are the implications of multiple pricing of natural gas?

What are the major concerns of the stakeholders going forward?

Estimated size of gas market in Gujarat by 2015

What are the prospects of the proposed LNG terminals in Gujarat?

The future of imported pipeline gas in India What are the opportunities for various stakeholders due to the booming gas market in Gujarat?

What are the envisaged benefi ts due to new avenues of investments in gas infrastructure?

Must Buy For:

Gas Transmission Companies LNG Suppliers Pipeline Manufacturing Companies EPC Companies IT Companies Power & Fertiliser Companies CGD Companies Regulatory Agencies Project Financers and Investment Bankers Consultants, Legal & Equity research fi rms Research and Educational Institutes

Natural Gas Demand-Supply Balance in Gujarat (mmscmd)

0

20

40

60

80

FY2007 FY2008 FY2009 FY2010

Demand Supply

32 43 4312

12 12

4953

731014

19

2012 2015 2020

Power Fertiliser Industry Distribution

Projected Natural Gas Demand in Gujarat (mmscmd)

KG D6 Supply

Natural Gas Market in Gujarat Assessing the Progress and Prospects

Natural Gas Market in Gujarat

1. Gujarat - A Maturing Natural Gas Based Economy The Indian Gas Market Story Industrial Landscape in Gujarat Prominent Gas Consumers

2. Natural Gas Demand - Supply Scenario Power Sector Industrial CGD Others

3. Key Drivers Geographic Advantage Industrialisation Multiple Supply Sources Aggressively Spanning Gas Transportation Infrastructure

Policy Developments Environmental Benefi ts CDM Benefi ts

4. Economics of Gas Business For End Consumers For Gas Transporters For CGD Companies

5. Gas Infrastructure and Key Players Domestic Gas Suppliers: Prospering Gujarat

LNG Terminals: Enforcing an Economic Boon

Gas Grid: The Critical Facilitator CGD Network: Enabling Last Mile Connectivity

Gas Market Developments in Gujarat6. Gas Pricing and Tariff in Gujarat

Domestic Gas Pricing LNG Pricing Spot Gas Pricing The Dilemma of Gas Price Pooling Gas Transportation Tariff CGD Pricing Towards Market Based Pricing Multiple Pricing of Natural Gas & Implications Thereof

7. Success Stories & Stakeholders’ Concerns GSFC Morbi Ceramic Cluster City Gas Distribution Rural CGD Steel Industry Issues and Concerns of Stakeholders Way Ahead

8. Sector Attractiveness Analysis of Gas Market in Gujarat SWOT Analysis PESTLE Analysis

9. Estimating the Gas Market in Gujarat – 2015 For Power Sector For CGD For Industrial Proposed Industrial Zones

10. Evaluating Future Gas Supply Options

Domestic Gas: Backbone for Economic Growth

LNG: Fuelling the Future Imported Piped Gas (TAPI, IPI, Myanmar, Oman): Distant Dreams

Challenges Ahead in Sourcing Gas Projected Demand - Supply Balance

11. Opportunity Matrix for Stakeholders Gas Suppliers Gas Transporters CGD Companies Financial Institutions Piping Companies EPC Companies Equipment Suppliers IT Companies

12. Potential Avenues for Investments Shale Gas Arresting Gas Flaring Natural Gas Storage Natural Gas Exchange Benefi ts Percolating to the End Users

13. Conclusion14. Annexure

Shale Gas Potential: Gujarat vis-à-vis India

Status of CGD Business in Gujarat

Table of Contents

In this backdrop, Infraline Energy is coming out with a busi-ness series report that provides a comprehensive overview of the natural gas business in the most progressive state of India. This report aims to provide a comprehensive analysis of the underlying opportunities in the natural gas business for all players across the entire value chain. Increase in share of natural gas in the overall energy basket to global level of 25 percent from the present 10 percent in India can only be achieved, if business dynamics of states like Gujarat are studied and moulded to suit the economic landscape of other states.

Segments NumbersHouseholds supplied by PNG 5,71,2,661

Commercial Customers 8,070

Industrial Customers 2,415

CNG Stations 183

Gas Consumption (mmscmd) 8.16

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