India's Enormous Gas Find
Changes Energy Economics
By Indrajit Basu
UPI Business Correspondent

CALCUTTA, India (UPI) -- The discovery of 7 trillion cubic feet of liquefied natural gas by Reliance Industries Ltd. off India's eastern coast has set off speculation that the country's energy supply economics are about to be rewritten.
Reliance -- India's largest privately held company -- said it had struck the huge reserve last week. According to the U.S. -based oil consultancy firm, McNaughten, "it is the biggest gas discovery in India in nearly three decades and one of the largest discoveries in the world this year."
In terms of scale, it is roughly 40 times the size of India's largest producing gas field, the Bombay High. In terms of production, at a starting production capacity of 40 million cubic meters a day, it could yield two-thirds of the country's current gas supply.
On a global scale, it is comparable to past gas discoveries in the Gulf, the Sakhalin Islands and Vietnam.
But even as India's energy-starved market rejoices over this massive fine, experts have begun speculating about what it will mean to the country's energy future.
Will Reliance drive other LNG projects into bankruptcy? Will it scupper plans to import piped gas? Will it replace coal as the main fuel for power generation and oil as the main transportation fuel?
In terms of energy security -- India imports 70 percent of its crude oil requirement, worth $12 billion a year -- this is good news, according to Rajeev Thakur, energy expert with the credit rating agency ICRA Ltd.
According to Oil Minister Ram Naik: "This find moves India a step closer to securing its energy needs after deregulation."
India loosened controls on the oil sector in April, which -- among other things -- allowed oil companies to enter and exit freely.
But according to some industry experts, Reliance's find is big enough to unsettle the plans of many multinational and Indian oil companies.
India's present gas demand is about 152 million cubic meters per day, against supply of about 66 mcmd. The shortfall is made up through imports.
Three state-owned oil companies account for 85 percent of the supply, with the rest from other Indian and foreign oil joint ventures.
Thus, as Reliance opens its taps, about three years from now, state-owned oil companies could lose their dominant position.
Foreign privately owned oil firms could also find it rough. These companies include Petronet, Shell, British Gas, CMS Energy Asia, Siemens Power Venture and Woodside Petroleum. And there are Indian companies likely to be affected, such as Grasim Industries.
These companies, attracted by an open market and a projected gas shortfall of 268 mmcd by 2012, have recently entered India with LNG projects.
Another issue is the fate of India's high-profile, politically contentious transnational gas pipeline projects from Iran, Turkmenistan and Bangladesh. While all these projects are being held up by politics, they might also be the first casualties of the new discovery. In total, they were supposed to bring in about as much gas as the new find can produce per day.
But optimists, such as Suresh Mathur, the chairman and managing director of Petronet, says that the new discovery will have no material impact on India's LNG situation. Mathur believes India will remain gas-starved for years to come, even with the Reliance find.
Industry sources said it would take at least four more such discoveries before the country achieves LNG self-sufficiency.
So there is much at stake -- but it is clear that the country's energy scenario is in for a paradigm shift.
Newer finds of domestic natural gas could lead to large-scale displacement of naphtha as a feedstock for fertilizer plants, and that could reduce costs and lower petrochemical prices as well.
The find could also have some positive outcomes for supporters of clean fuel. India is the world's third-largest user of coal -- the dirtiest of all fuels -- with about 55 percent of its energy being drawn from this resource. Oil is second, at 30.5 percent while natural gas, considered the cleanest, accounts for only 7 percent of the energy used.
Any increase in LNG use, through increased supplies, would be at the expense of coal.
Further, India spends a quarter of its import bill on oil. So a significant domestic will help conserve foreign exchange.
Finally, it's estimated that Reliance will need $1.4 billion to extract and distribute the gas. That could mean opportunities for financiers, infrastructure developers and energy-industry service providers.
Since partial funding through the markets would be required, it could also mean another public offering from the Reliance group, which -- with 15 million shareholders -- already has the world's largest number of investors of any single company.
Copyright © 2002 United Press International. All rights reserved.


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