Assignment

On

“Demand Analysis and Demand Forecasting Techniques”

For

“ONGC India Ltd.”

Sub: Strategic Management

Submitted to: Prepared By:

Mr. B.N.Vidholia Vaibhav Batua (01)Parfez Virani (32)Digesh Shah (23)Nimil Parikh (13)Ruchika Mishra (10)

M.S. Patel Institute of Management Studies

M.S. University, Baroda.

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Table of Contents

Sr. No. Content Page No.1 Company Profile 32 Product Profile 53 Products Studied for the purpose of the Assignment 64 What is Natural Gas? 75 How Was Natural Gas Formed? 86 Chemical Composition Of Natural Gas 107 Demand fluctuations in Natural Gas

Factors Affecting Short Term Demand for Natural Gas

Factors Affecting long Term Demand for Natural Gas

12

8 Customer Profile 189 Demand 19

10 Supply 2111 Demand forecasting of Natural Gas by Different Method 2212 Conclusion 33

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ONGC INDIA LTD.Company Profile:

ONGC is India’s most valuable public sector enterprise and it represents country’s Energy Security. ONGC is the only fully–integrated petroleum company in India, operating along the entire hydrocarbon value chain.

ONGC is a”MAHARATNA” public sector enterprise.

Oil and Natural Gas Corporation limited is the Biggest Exploration and Production Company in India. ONGC, a Fortune-Global 500 Company, is recognized as one of the top E&P Company in the world and ranks 25th among leading global Energy majors as per ‘Platts Top 250’ Global Energy Company Ranking 2008.

ONGC ranked 413th position as per Fortune Global 500 - 2010 list based on revenues, profits, assets and shareholder’s equity. PFC Energy 50 ranked ONGC at 23rd amongst Global Oil & Gas Companies by Market Capitalization and ranked 4th as Global E&P Company. ONGC is placed 2nd amongst all Indian Corporates listed in Forbes Global 2000 (rank 155th).

ONGC has discovered 6 of the 7 commercially-producing Indian Basins, in the last 50 years, adding over 6.5 billion tonnes of In-place Oil & Gas Reserves.

ONGC’s wholly-owned subsidiary ONGC Videsh Ltd. (OVL) is the biggest Indian multinational, with 44 Oil & Gas projects (7 of them producing) in 18 countries. ONGC has also ventured into to Refining, LNG, Petrochemicals, Power, SEZ, etc. to further strengthen its core business activities.

ONGC has been aggressively pursuing its three long-term (2001-2020) strategic goals which were formulated in 2001; first, to double in-place hydrocarbon accretion to 12 billion tonne; second, to enhance global Recovery Factor from its domestic producing fields from 28% to 40%; and the third, to access 20 million tonne per annum equity oil from abroad.

ONGC has a unique distinction of being a company with in-house service capabilities in all the activity areas of exploration and production of oil & gas and related oil field services.

ONGC has been playing a very important role in strengthening the fabrics of the society. ONGC has a well articulated policy on CSR under which it focuses on promoting education, healthcare & entrepreneurship in the community. ONGC accords high importance to environment management in its various operational activities.

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ONGC is spearheading the United Nations Global Compact – World’s biggest corporate citizenship initiative to bring Industry, UN bodies, NGOs, Civil societies and corporate on the same platform.

Board of Directors

R S Sharma (Chairman & Managing Director)

Dr. A K Batyan – Director (Human Resource)

Mr. A K Hazarika - Director (Onshore)

Mr. D K Pande – Director (Exploration)

Mr. U N Bose - Director (Technology & Field Services)

Mr. D K Sarraf - Director (Finance)

Mr. S Vasudeva - Director (Offshore)

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Product Profile

Oil and Natural Gas Corporation (ONGC) is engaged in the exploration, production,

refining, transporting and marketing of crude oil, natural gas, liquefied petroleum gas, natural

gas liquid, ethane, propane and other products.

The company’s key products and services include the following:

Products:

Crude oil

Natural gas

Liquefied petroleum gas

Natural gas liquid

Ethane / propane

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Products Studied for the purpose of the Assignment

As shown above ONGC India Ltd. produces a wide array of products including Oil and Natural Gas. For the purpose of this assignment we have selected Natural Gas as a product.

Natural Gas is a vital component of the world's supply of energy. It is one of the cleanest, safest, and most useful of all energy sources. Despite its importance, however, there are many misconceptions about natural gas. For instance, the word 'gas' itself has a variety of different uses, and meanings. When we fuel our car, we put 'gas' in it.

However, the gasoline that goes into your vehicle, while a fossil fuel itself, is very different from natural gas. The 'gas' in the common barbecue is actually propane, which, while closely associated and commonly found in natural gas, is not really natural gas itself. While commonly grouped in with other fossil fuels and sources of energy, there are many characteristics of natural gas that make it unique. Below is a bit of background information about natural gas, what exactly it is, how it is formed, and how it is found in nature.

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What is Natural Gas?

Natural gas, in itself, might be considered a very uninteresting gas - it is colorless, shapeless, and odorless in its pure form. Quite uninteresting - except that natural gas is combustible, and when burned it gives off a great deal of energy. Unlike other fossil fuels, however, natural gas is clean burning and emits lower levels of potentially harmful byproducts into the air. We require energy constantly, to heat our homes, cook our food, and generate our electricity. It is this need for energy that has elevated natural gas to such a level of importance in our society, and in our lives.

Natural gas is a combustible mixture of hydrocarbon gases. While natural gas is formed primarily of methane, it can also include ethane, propane, butane and pentane. The composition of natural gas can vary widely, but below is a chart outlining the typical makeup of natural gas before it is refined.

In its purest form, such as the natural gas that is delivered to your home, it is almost pure methane. Methane is a molecule made up of one carbon atom and four hydrogen atoms, and is referred to as CH4. Ethane, propane, and the other hydrocarbons commonly associated with natural gas have slightly different chemical formulas, in this report.

Natural gas is considered 'dry' when it is almost pure methane, having had most of the other commonly associated hydrocarbons removed. When other hydrocarbons are present, the natural gas is 'wet'.

Natural gas has many uses, residentially, commercially, and industrially. Found in reservoirs underneath the earth, natural gas is commonly associated with oil deposits. Production companies search for evidence of these reservoirs by using sophisticated technology that helps to find the location of the natural gas, and drill wells in the earth where it is likely to be found. Once brought from underground, the natural gas is refined to remove impurities like water, other gases, sand, and other compounds. Some hydrocarbons are removed and sold separately, including propane and butane. Other impurities are also removed, like hydrogen sulfide (the refining of which can produce sulfur, which is then also sold separately). After refining, the clean natural gas is transmitted through a network of pipelines, thousands of miles of which exist in the India alone. From these pipelines, natural gas is delivered to its point of use.

Natural gas can be measured in a number of different ways. As a gas, it can be measured by the volume it takes up at normal temperatures and pressures, commonly expressed in cubic feet. Production and distribution companies commonly measure natural gas in thousands of cubic feet (Mcf), millions of cubic feet (MMcf), or trillions of cubic feet (Tcf). While measuring by volume is useful, natural gas can also be measured as a source of energy. Like other forms of

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A Natural Gas Wellhead

energy, natural gas is commonly measured and expressed in British thermal units (Btu). One Btu is the amount of natural gas that will produce enough energy to heat one pound of water by one degree at normal pressure. To give an idea, one cubic foot of natural gas contains about 1,027 Btus. When natural gas is delivered to a residence, it is measured by the gas utility in 'therms' for billing purposes. A therm is equivalent to 100,000 Btu's, or just over 97 cubic feet, of natural gas.

How Was Natural Gas Formed?

Natural gas is a fossil fuel. Like oil and coal, this means that it is, essentially, the remains of plants and animals and microorganisms that lived millions and millions of years ago. But how do these once living organisms become an inanimate mixture of gases?

There are many different theories as to the origins of fossil fuels. The most widely accepted theory says that fossil fuels are formed when organic matter (such as the remains of a plant or animal) is compressed under the earth, at very high pressure for a very long time.

This is referred to as thermogenic methane. Similar to the formation of oil, thermogenic methane is formed from organic particles that are covered in mud and other sediment. Over time, more and more sediment and mud and other debris are piled on top of the organic matter. This sediment and debris puts a great deal of pressure on the organic matter, which compresses it. This compression, combined with high temperatures found deep underneath the earth, break down the carbon bonds in the organic matter. As one gets deeper and deeper under the earths crust, the temperature gets higher and higher.

At low temperatures (shallower deposits), more oil is produced relative to natural gas. At higher temperatures, however, more natural gas is created, as opposed to oil. That is why natural gas is usually associated with oil in deposits that are 1 to 2 miles below the earth's crust. Deeper deposits, very far underground, usually contain primarily natural gas, and in many cases, pure methane.

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Natural gas can also be formed through the transformation of organic matter by tiny microorganisms. This type of methane is referred to as biogenic methane. Methanogens, tiny methane producing microorganisms, chemically break down organic matter to produce methane. These microorganisms are commonly found in areas near the surface of the earth that are void of oxygen. These microorganisms also live in the intestines of most animals, including humans.

Formation of methane in this manner usually takes place close to the surface of the earth, and the methane produced is usually lost into the atmosphere. In certain circumstances, however, this methane can be trapped underground, recoverable as natural gas.

An example of biogenic methane is landfill gas. Waste-containing landfills produce a relatively large amount of natural gas, from the decomposition of the waste materials that they contain. New technologies are allowing this gas to be harvested and used to add to the supply of natural gas.

A third way in which methane (and natural gas) may be formed is through biogenic processes. Extremely deep under the earth's crust, there exist hydrogen-rich gases and carbon molecules.

As these gases gradually rise towards the surface of the earth, they may interact with minerals that also exist underground, in the absence of oxygen. This interaction may result in a reaction, forming elements and compounds that are found in the atmosphere (including nitrogen, oxygen, carbon dioxide, argon, and water).

If these gases are under very high pressure as they move towards the surface of the earth, they are likely to form methane deposits, similar to thermogenic methane.

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Chemical Composition

Natural gas typically consists primarily of methane (CH4), the shortest and lightest hydrocarbon molecule. It also contains varying amounts of:

Heavier gaseous hydrocarbons: ethane (C2H6), propane (C3H8), normal butane (n-C4H10), isobutane (i-C4H10), pentanes and even higher molecular weight hydrocarbons. When processed and purified into finished by-products, all of these are collectively referred to as NGL (Natural Gas Liquids).

Acid gases: carbon dioxide (CO2), hydrogen sulfide (H2S) and mercaptans such as methanethiol (CH3SH) and ethanethiol (C2H5SH).

Other gases: nitrogen (N2) and helium (He).

Water: water vapor and liquid water.

Liquid hydrocarbons: perhaps some natural gas condensate (also referred to as casing head gasoline or natural gasoline) and/or crude oil.

Mercury: very small amounts of mercury primarily in elemental form, but chlorides and other species are possibly present.

Typical Composition of Natural Gas

Methane CH4 70-90%

Ethane C2H6 10-15%

Propane C3H8 0-20%

Carbon Dioxide CO2 0-8%

Oxygen O2 0-0.2%

Nitrogen N2 0-5%

Hydrogen sulphide H2S 0-5%

Rare gases A, He, Ne, Xe trace

Nitrogen, helium, carbon dioxide and trace amounts of hydrogen sulfide, water and odorants can also be present. Mercury is also present in small amounts in natural gas extracted from some fields. The exact composition of natural gas varies between gas fields.

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Organosulfur compounds and hydrogen sulfide are common contaminants that must be removed prior to most uses. Gas with a significant amount of sulfur impurities, such as hydrogen sulfide, is termed sour gas and often referred to as "acid gas.” Processed Natural gas that is available to end-users is tasteless and odorless; however, before gas is distributed to end-users, it is odorized by adding small amounts of thiols, to assist in leak detection. Processed Natural gas is, in itself, harmless to the human body—however, natural gas is a simple asphyxiant and can kill if it displaces air to the point where the oxygen content will not support life.

Natural gas can also be hazardous to life and property through an explosion. Natural gas is lighter than air, and so tends to dissipate into the atmosphere. But when natural gas is confined, such as within a house, gas concentrations can reach explosive mixtures and, if ignited, result in blasts that could destroy buildings. Methane has a lower explosive limit of 5 percent in air, and an upper explosive limit of 15 percent.

Explosive concerns with compressed natural gas used in vehicles are almost non-existent, due to the escaping nature of the gas, and the need to maintain concentrations between 5 percent and 15 percent to trigger explosions.

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Demand fluctuations in Natural Gas

Factors Affecting Short Term Demand for Natural Gas:

Demand for natural gas has traditionally been highly cyclical. Demand for natural gas depends highly on the time of year, and changes from season to season. In the past, the cyclical nature of natural gas demand has been relatively straightforward: demand was highest during the coldest months of winter and lowest during the warmest months of summer. The primary driver for this primary cycle of natural gas demand is the need for residential and commercial heating.

As expected, heating requirements are highest during the coldest months and lowest during the warmest months. This has resulted in demand for natural gas spiking in January and February, and dipping during the months of July and August. Base-load storage capacity is designed to meet this cyclical demand: base-load storage withdrawals typically take place in the winter months (to meet increased demand), while storage injection typically takes place in the summer months (to store excess gas in preparation for the next up cycle).

The relatively recent shift towards use of natural gas for the generation of electricity has resulted in an anomaly in this traditional cyclical behavior. While requirements for natural gas heating decrease during the summer months, demand for space cooling increases during this warmer season. Electricity provides the primary source of energy for residential and commercial cooling requirements, leading to an increase in demand for electricity. Because natural gas is used to generate a large portion of electricity in the India, increased electrical demand often means increased natural gas demand.

This results in a smaller spike in natural gas demand during the warmest months of the year. Thus, natural gas demand experiences its most pronounced increase in the coldest months, but as the use of natural gas for the generation of electricity increases, the magnitude of the smaller summer peak in demand for natural gas is expected to become more pronounced.

In general, in addition to this cyclical demand cycle, there are two primary drivers that determine the demand for natural gas in the short term. These include:

Weather - As mentioned, natural gas demand typically peaks during the coldest months and tapers off during the warmest months, with a slight increase during the summer to meet the demands of electric generators. The weather during any particular season can affect this cyclical demand for natural gas. The colder the weather during the winter, the more pronounced will be the winter peak. Conversely, a warm winter may result in a less noticeable winter peak. An extremely hot winter can result in even greater cooling demands, which in turn can result in increased summer demand for natural gas.

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Fuel Switching - Supply and demand in the marketplace determine the short term price for natural gas. However, this can work in reverse as well. The price of natural gas can, for certain consumers, affect its demand. This is particularly true for those consumers who have the capacity to switch the fuel upon which they rely. While most residential and commercial customers rely solely on natural gas to meet many of their energy requirements, some industrial and electric generation consumers have the capacity to switch between fuels. For instance, during a period of extremely high natural gas prices, many electric generators may switch from using natural gas to using cheaper coal, thus decreasing the demand for natural gas.

Indian Economy - The Indian economy in general can have a considerable effect on the demand for natural gas in the short term, particularly for industrial consumers. When the economy is expanding, output from industrial sectors is generally increasing at a similar rate. When the economy is in recession, output from industrial sectors drops. These fluctuations in industrial output accompanying economic upswings and downturns affects the amount of natural gas needed by these industrial users. For instance, during the economic downturn of 2006, industrial natural gas consumption fell by 6 percent. Thus the short term status of the economy has an effect on the amount of natural gas consumed in the India.

Factors Affecting Long Term Demand for Natural Gas:

While short term factors can significantly affect the demand for natural gas, it is the long term demand factors that reflect the basic trends for natural gas use into the future. In order to analyze those factors that affect the long term demand for natural gas, it is most beneficial to examine natural gas demand by sector. However, it is useful to have an understanding of what natural gas is used for in each of these sectors beforehand and These include:

Residential and Commercial Demand:

The residential energy demand to increase 25 percent between 2002 and 2025. Residential use of natural gas is expected to increase by 1.5 percent per year from 2002 to 2010 and 0.9 percent from 2010 to 2025, increasing 25.5 percent from 2002 to 2025. Residential natural gas consumption accounts for 22 percent of all consumption in the India.

Probably the most important long term driver of natural gas demand in the residential sector is future residential heating applications. Between 1991 and 1999, 66 percent of new homes, and 57 percent of multifamily buildings constructed used natural gas heating. In 2003, 70 percent of new single family homes constructed used natural gas. While these new homes being built are generally increasing in size, the increasing efficiency of natural gas furnaces used to heat them compensates for the increased square footage to be heated. In general, however,

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the increase in the number of new homes using natural gas for heat over the next 20 years is expected to provide a strong driver for residential natural gas demand.

The energy demand in the commercial sector to increase at an average annual rate of 1.7 percent through to 2025. Commercial floor space is expected to increase at a rate of 1.5 percent per year over the same period, so the energy demand per area of commercial floor space is expected to increase 0.2 percent per year. Natural gas currently supplies 18.4 percent of the energy consumed in the commercial sector, but it will supply 16.1 percent in 2025.

The residential and commercial sectors include:

Electric Industry Restructuring - as electricity offers the greatest competition to natural gas use in the residential and commercial sector, the availability and price of electricity for retail consumers will affect the demand for natural gas. As the electric industry is restructured and deregulated, it is expected that electricity prices will remain stable or decline slightly over the next 20 years. However, it is expected that those states with low current electricity prices may see rate increases with the introduction of competition. In these states, residential alternatives to electricity, including natural gas appliances and distributed generation, are expected to become more attractive, which will increase the demand for natural gas in these states. In those areas where electricity prices decrease, however, residential natural gas demand may decline slightly, as lower priced electricity offers comparative value. However, the entrance of distributed generation technologies may offset the more competitive prices of electricity, particularly for the commercial sector.

Demographics and Population Centers - The changing demographics of the India population also affects the demand for natural gas. As these areas are generally warmer climates, there will be an increase in demand for cooling, and less of a demand for heating. As electricity currently supplies most of the nation's space cooling energy requirements, and natural gas supplies most of the energy used for space heating, population movement may decrease natural gas demand in these sectors. However, as distributed generation and residential natural gas cooling technologies advance, and residential consumers can use natural gas to supply their electricity needs, natural gas demand could in fact increase. Another demographic trend is the aging of the large 'baby boomer' generation. It is expected that as this generation ages, their requirements for cooling in warm weather and heating in cooler weather will increase, thus driving demand for both electricity and natural gas.

Energy Efficiency Regulations - The concept of energy efficiency is continually being addressed in government, by environmental concerns, and by consumer advocacy groups. While the basic advantages to investing in energy efficient appliances are well known in both residential and commercial settings, current regulations do not take into account total energy efficiency measured directly from the source. Natural gas is extremely efficient, losing very little of its energy value as it reaches its point of end use.

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Electricity, on the other hand, measured from the point of generation to the wall socket, is much less efficient. In fact, only about 27 percent of the energy put into generating electricity is available by the time it reaches your home. Thus, while an electric appliance may be extremely efficient in using the electricity it takes from the wall socket; this does not take into account the energy that is lost in generation and transmission. Increasingly strict regulations regarding total energy efficiency may thus make natural gas the more desirable efficient energy source for residential and commercial appliances.

Technological Advancements - Currently, the majority of energy used by the commercial sector is in the form of electricity. Similarly, many common household appliances can only run on electricity. The advancement of natural gas technology in the form of offering natural gas powered applications that may compete with these electric operated appliances may provide a huge increase in demand for natural gas. Natural gas cooling, combined heat and power, and distributed generation are expected to make inroads into those applications that have traditionally been served solely by electricity.

Industrial Demand

It is estimated that industrial energy demand to increase at an average rate of 1.2 percent per year to 2025. This may seem like a low level of growth, however it represents energy requirements for both energy-intensive manufacturing industries (which are expected to decline), and non energy-intensive manufacturing industries (which are expected to grow). Industrial demand accounts for 37.6 percent of natural gas demand, which is the highest of any sector.

The primary force shaping the demand for natural gas, and other sources of energy, in the industrial sector is the movement away from energy-intensive manufacturing processes, towards less energy-intensive processes. There are two driving forces behind this shift: the increased energy efficiency of equipment and processes used in the industrial sector, as well as a shift to the manufacture of goods that require less energy input. It is because of this trend that, while industrial shipments increased by 41 percent from 1980 to 2002, total energy consumption only increased by 1 percent. This trend is expected to hold into the future, and is the reason for modest increases in energy demand for the industrial sector.

Despite this shift from energy-intensive processes to less energy-intensive processes, the demand for energy is expected to increase in the industrial sector. According to reports, there are several factors which could affect the demand for natural gas over other sources of energy to meet the long term energy requirements of the industrial sector. These include:

Economics of the Industrial Sector - The industrial sector has been experiencing a period of consolidation that is expected to last into the future. Industrial companies have been merging at a relatively fast pace; a market scenario in which cutting costs and increasing efficiency becomes paramount. This could lead to increased demand for

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efficient natural gas powered applications in the sector to replace those processes which are extremely energy inefficient. An example of this is the popularity of natural gas in the generation of steam. Natural gas fired combined heat and power systems, as well as natural gas fired boilers, can be much more efficient and cost effective than older boilers running on coal and petroleum. This is especially true if evaluated on a total energy efficiency basis. However, the replacement of this older industrial equipment with newer natural gas fired equipment requires an up-front capital investment, which may be prohibitive in some situations.

Electricity Restructuring - The price and availability of electricity in the industrial sector will play a role in determining the demand for natural gas. Many electric generation utilities have been cutting prices for industrial consumers in the hopes of gaining increased market share in preparation for the complete deregulation of the electric industry. However, natural gas powered distributed generation technologies, as well as combined heat and power applications, offer industrial energy users with attractive alternatives to purchased electricity. Some industrial energy consumers, fearful of the effects of deregulation on the reliability and flexibility of electricity supply, may choose instead to generate their own electricity on-site, powered by natural gas.

Environment Emissions Regulations - It is expected that the restrictions on industrial air emissions will be tightened significantly over the foreseeable future. Government of India have already begun to impose very strict regulations on the harmful emissions of many industrial processes. Natural gas represents a cleaner burning alternative to coal and petroleum use in the industrial sector and the imposition of stringent regulations may serve to increase the demand for natural gas in the industrial sector. Additionally, should an emissions trading market develop the cost of financing new, clean natural gas equipment may be offset by the revenue that may be brought in through the trading of surplus emissions credits.

Technological Advancements - As with the residential and commercial sectors, the advancement of new and existing natural gas technologies will play a role in the demand for natural gas from the industrial sector. Distributed generation offers great promise in the industrial sector. The reliability and flexibility offered by the on-site generation of electricity is particularly important for the industrial sector, where loss of electricity could have disastrous consequences, including spoiled products for a manufacturer dependent on electricity. Thus, the expansion of distributed generation, and combined heat and power units, could be the next frontier for increased natural gas demand in the industrial sector.

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Electric Generation Demand

The demand for electricity is predicted to increase by an average rate of 1.8 percent per year through to 2025. In order to meet this growing demand, 335 gigawatts of new electric generation capacity is expected to be needed by 2025. Because of the relatively low capital requirements for building natural gas fired combined cycle generation plants, as well as the reduction of emissions that can be earned from using natural gas as opposed to other dirtier hydrocarbons like coal, economists of India expects 57 percent of new electric generation capacity built by 2025 will be natural gas combined-cycle or combustion turbine generation

There are two primary forces at work that serve to increase the demand for natural gas in electric generation. The increased demand for electricity in general, combined with the retirement of old nuclear, petroleum, and coal powered generation plants, leaves a significant requirement for electric generation that is to be filled by natural gas use. Natural gas is expected to fulfill the requirements for electric generation for a variety of reasons, including:

Flexibility and Capital Investment - Natural gas electric generation plants can range in size from large-scale generation plants down to very small-scale microturbines. Most nuclear and coal fired power plants, however, are limited to larger-scale generation, and must produce larger quantities of electricity in order to be economic. Because the demand for electricity is expected to increase modestly over the next 20 years, many electricity suppliers are wary of making the large capital investments necessary to build a coal or nuclear powered generating facility. Natural gas fired plants, with lower capital investment costs and greater flexibility (including shorter construction and lead times) are much more readily available and practical to add incremental generation capacity as it is required.

Environmental Concerns - Most generation of electricity in India comes from coal, mostly due to its extremely competitive price and domestic abundance. However, burning coal for the generation of electricity is extremely polluting. Natural gas, however, is the cleanest burning fossil fuel, and emits very few pollutants into the atmosphere. As public concern over air quality increases, and more stringent emissions regulations are adopted, natural gas is the primary clean burning, environmentally friendly alternative to coal generation

Efficiency - Natural gas powered combined cycle generation units are extremely energy efficient. Modern natural gas fired combined cycle generation units can approach 60 percent efficiency, whereas traditional boiler units are usually only around 34 percent efficient, regardless of fuel source. This means that using natural gas powered combined cycle technology allows for more electricity produced per unit of natural gas used. This can both increase the cost-effectiveness of the

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generation plant, as well as reduce the plants emissions (because less fuel is being burned)

Operational Flexibility - Natural gas fired electric generation systems used to meet short term peak electricity demands have the advantage of being very operationally flexible. These natural gas fired generators can be quickly and easily turned on and off, allowing for the timely generation of electricity to meet short term requirements on a moments notice. Neither coal nor nuclear generation plants have the ability to operate in this manner. Offering such flexibility in the generation of peak electricity makes natural gas an extremely attractive option for meeting these electricity requirements.

Transportation Sector Demand:

Natural gas use in the transportation sector is still in its infancy; although natural gas powered vehicles present an enormous opportunity for cleaning up the emissions from this sector. Demand from the transportation sector accounts for 3 percent of total Indian natural gas demand, and most of this demand is for natural gas to fuel the pipeline transportation of hydrocarbons. Natural gas supplies barely a fraction of the total energy used in the transportation sector, and the demand for natural gas to supply natural gas vehicle operation is almost negligible compared to the energy requirements of traditionally fueled vehicles.

The demand for alternative fuel vehicles (including natural gas vehicles) is expected to increase in the foreseeable future primarily due to new legislation and regulation surrounding emissions from the transportation sector. As more stringent emissions standards are adopted, both at the federal and state level, the automotive industry will have no choice but to devote significantly more resources into the development of feasible production line natural gas vehicles; vehicles that are environmentally sound and meet consumer preferences. However, the technology required to do so, including the need for a natural gas refueling infrastructure, are current barriers to the widespread proliferation of natural gas vehicles in India.

Customers Profile

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Demand

As per the estimates by DGH, coal comprises 54 per cent of India’s primary energy consumption, while oil comprises about 33 per cent (as of 1st April 2006). The growth in demand is projected to catapult the overall demand to 196 MMT in 2011-12 and 250 MMT in 2024-25.

The growing demand-supply gap has led the Indian government to open up E&P to private participants, through NELP and develop a more holistic strategy for acquisition of equity oil abroad. On the gas front, when compared to mature natural gas based economies like, Japan, Korea, and the United States, India is a relatively new entrant. However, the increasing significance of this fuel in the Indian context can be gauged from the fact that, by 2025, the country is expected to leave behind both China and Japan in having the largest natural gas demand in Asia. The demand in each of these countries is expected to be in the range of 350 MMSCMD.

The registered demand with GAIL alone, for natural gas in the country is around 260 MMSCMD. The Government of India has also constituted an Expert Group to assess the realistic demand for natural gas.

The significant potential for natural gas demand is being driven by the following key factors:

• The share of natural gas in India’s energy basket is only around 9 per cent, as compared to the world average of around 24 per cent. More than 50 per cent of natural gas (NG) volume goes to sectors in which it is a substitute to petroleum products and the rest goes to the power sector

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where it substitutes coal. The share of NG in the fuel mix, is expected to go up, from the present 8.8 per cent levels to 22 per cent in 2031-32

• Per capita consumption of NG in India is currently amongst the lowest in the world, at 29 cubic meters when compared to the world average of around 538 cubic meters

Year Demand (mmscnd)2005-06 97.32006-07 100.52007-08 118.52008-09 135.42009-10 157.82010-11 1792011-12 200.5

Supply

On the demand front, despite the significantly high potential across several sectors, we noted that the realizable demand for natural gas will be a function of gas supplies in the market, the price competitiveness of gas vis-à-vis alternative fuels, timely commissioning of the proposed transmission pipeline infrastructure, and some regulatory initiatives in power sector. If the last two factors materialized, we would expect gas demand to rise to around 390 MMSCMD within a decade (i.e., by 2019-20) from the actual consumption of around 170 MMSCMD in 2009-10. Refer Charts 2 and 3 for the sectoral mix of gas consumption.

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The factors that see as driving the demand for natural gas in the various consuming sectors over the medium to long term are discussed in the following sections.

Emerging Scenario and Energy requirements

India has an ambition of achieving a high growth rate economy. The Common Minimum Programme of United Progressive Alliance (UPA) running the Government in India wants to ensure that the growth of economy is in the range of 7 to 8 per cent per year in a sustained manner over the next decade and more. A large quantum of energy in the form of coal, refined fuels and natural gas would be required to fuel such high GDP growth rates.

Energy source availability and investments are the areas to be focused upon by the energy sector and the Government of India is aligning policy structure conducive to attract investments of high magnitude.

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The outlook of various agencies on India’s hydrocarbons demand indicates robust growth. The demand for middle distillates, which include transport fuel, is expected to grow at the highest rate. As regards natural gas, the last year’s consumption of 30.9 BCM is expected to rise at a CAGR of 6.75 per cent to 181 BCM in 2030 under supply unconstrained scenario.

DEMAND & SUPPLY FORECASTING

Historically, India has been gas deficit due to demand growth outpacing supply growth. We believe the robustness in demand from various sectors, primarily power and fertilizers to continue. Also, the supply scene is likely to be augmented with new finds flowing in the supply chain from late 2008. However, we still believe that the demand supply gap will be maintained with the tilt more in favor of demand and any balanced situation in demand supply gap will be a temporary phenomenon.

Demand of Natural Gas (India)

year demand (mmscnd)2005-06 97.32006-07 100.52007-08 118.52008-09 135.4

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2009-10 157.82010-11 1792011-12 200.5

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-120

50

100

150

200

250

Natural Gas Demand (mmscnd)

demand (mmscnd)

ONGC India Ltd. Page 23

Supply of Natural Gas (India)

year supply (mmscnd)2005-06 92.92006-07 99.82007-08 100.62008-09 126.72009-10 151.42010-11 176.12011-12 199.6

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-120

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Natural Gas Supply (mmscnd)

supply (mmscnd)

ONGC India Ltd. Page 24

DEMAND V/S. SUPPLY of Natural Gas (India)

ONGC India Ltd. Page 25

Demand forecasting of Natural Gas:

By Double Smoothing Method

Application of double smoothing method with k=3 for demand forecasting of natural gas from the last 5 years:

Database:

year demand (mmscnd)2005-06 97.32006-07 100.52007-08 118.52008-09 135.42009-10 157.8

Double smoothing with K=3:

n year demand (mmscnd)

Moving Avg. (Mt)

(M't) (at) (bt) Forecasted value (y)

1 2005-06

97.3

2 2006-07

100.5

3 2007-08

118.5 105.4333333

4 2008-09

135.4 118.1333333

5 2009-10

157.8 137.2333333

120.2666667

154.2 16.96666667

171.1666667

6 2010-11

171.1666667 154.7888889

136.7185185

172.8592593

18.07037037

190.9296296

7 2011-12

190.9296296 173.2987654

155.1069959

191.490535

18.19176955

209.6823045

ONGC India Ltd. Page 26

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-120

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100

150

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Forecasted Demand of Natural Gas (mmscnd)

demand (mmscnd)

ONGC India Ltd. Page 27

Supply forecasting of Natural Gas

By Double Smoothing Method

Application of double smoothing method with k=3 for supply forecasting of natural gas from the last 5 years:

Database:

year supply (mmscnd)2005-06 92.92006-07 99.82007-08 100.62008-09 126.72009-10 151.4

Double smoothing with K=3:

n year supply (mmscnd)

Moving Avg. (Mt)

(M't) (at) (bt) Forecasted value (y)

1 2005-06 92.92 2006-07 99.83 2007-08 100.6 97.7666666

74 2008-09 126.7 109.033333

35 2009-10 151.4 126.233333

3111.0111

111141.455

555615.2222

2222156.677777

86 2010-11 156.6777

778144.925925

9126.7308

642163.120

987718.1950

6173181.316049

47 2011-12 181.3160

494163.131275

7144.7635

117181.499

039818.3677

6406199.866803

8

ONGC India Ltd. Page 28

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-120

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100

120

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180

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Forecasted Supply of Natural Gas (mmscnd)

supply (mmscnd)

ONGC India Ltd. Page 29

Demand forecasting of Natural Gas

By Naive method

Application of naïve method for demand forecasting on the natural gas from the last 5 years:

Database:

year demand (mmscnd)2005-06 97.32006-07 100.52007-08 118.52008-09 135.42009-10 157.8

n year demand (mmscnd)

Forecasted value (y)

1 2005-06 97.32 2006-07 100.53 2007-08 118.54 2008-09 135.4 103.75 2009-10 157.8 136.56 2010-11 136.5 152.37 2011-12 152.3 180.2

ONGC India Ltd. Page 30

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-120

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40

60

80

100

120

140

160

180

Forcasted Demand of Natural Gas (mmscnd)

demand (mmscnd)

ONGC India Ltd. Page 31

Supply forecasting of Natural Gas

By Naive method

Application of naïve method for supply forecasting on the natural gas from the last 5 years:

Database:

year supply (mmscnd)2005-06 92.92006-07 99.82007-08 100.62008-09 126.72009-10 151.4

n year supply (mmscnd) Forecasted value (y)

1 2005-06 92.92 2006-07 99.83 2007-08 100.64 2008-09 126.7 106.75 2009-10 151.4 101.46 2010-11 101.4 152.87 2011-12 152.8 176.1

ONGC India Ltd. Page 32

2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-120

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140

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Forecasted Supply of Natural Gas(mmscnd)

supply (mmscnd)

ONGC India Ltd. Page 33

Conclusion

The objective of this assignment is to investigate different business forecasting methods, and demonstrate the benefits of their use for ONGC India Ltd. We have learned that demand forecasting invokes the processes of determining exactly what products are needed, in what quantity, and in what amount of time, how they are affected by long term as well as short term demand for natural gas in India. We found that organizations that are able to implement effective forecasting will be better equipped to find the balance between managing demand for a product and the capacity to meet this demand. The ability of optimizing this unique balance enables ONGC India Ltd. to use this as a competitive advantage over their competitors.

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