The Future prospects of Natural Gas in INDIA

Rajiv Gandhi Institute of Petroleum Technology

Report Submitted by:Ankur Sachdeva- 0008

Mohit choudhary– 0026Prem ranjan - 0030Ravi kumar – 0033

Shailendra chaudhary - 0039

FUTURE PROSPECTS OF NATURAL GAS IN INDIA

Natural gas, earlier considered as just a by-product of crude oil production, has now gained

significant importance as a valuable source of energy internationally. Natural gas is now gaining

prominence as the fuel of the future as it meets clean fuel requirements and is cost effective for

major industries, as compared to traditional fuels such as coal and naphtha. Gas assets in India

did not receive much attention till few years back. However, mounting oil bills and need for

cleaner fuels has necessitated the country to explore its gas potential. Supply deficit has long

been a significant feature of India’s gas market. However, coming years will become a turning

point as these constraints are now loosening up due to LNG (Liquefied Natural Gas) imports and

domestic gas finds

What is natural gas?

Natural gas is a gas consisting primarily of methane. It is found associated with fossil fuels, in

coal beds, as methane catharses, and is created by methanogenic organisms in marshes, bogs, and

landfills. It is an important fuel source, a major feedstock for fertilizers, and a potent greenhouse

gas.

It is odorless, colorless & highly inflammable.

Natural gas is often informally referred to as simply gas, especially when compared to other

energy sources such as electricity. Before natural gas can be used as a fuel, it must undergo

extensive processing to remove almost all materials other than methane. The by-products of that

processing include ethane, propane, butanes, pentanes and higher molecular weight

hydrocarbons, elemental sulfur, and sometimes helium and nitrogen.

Utilization

Natural gas is a versatile source of energy, which can be used by different sectors. Heating and

electricity generation have been the main traditional uses. Increasing environmental concerns

may lead to a greater use of natural gas in transportation. Basic uses of natural gas may be

illustrated as below.

Residential users

Residential applications are the most commonly known use of natural gas. It can be used for

cooking, washing and drying, water warming, heating and air conditioning. Domestic appliances

are increasingly improved in order to use natural gas more economically and safely. Operating

costs of natural gas equipment are generally lower than those of other energy sources.

Commercial users

Main commercial users of natural gas are food service providers, hotels, healthcare facilities or

office buildings. Commercial applications include cooling (space conditioning and refrigeration),

cooking or heating.

Industry

Natural gas is used as an input to manufacture pulp and paper, metals, chemicals, stone, clay,

glass, and to process certain foods. Gas is also used to treat waste materials, for incineration,

drying, dehumidification, heating and cooling, and cogeneration.

Power Generation

Electric utilities and independent power producers are increasingly using natural gas to provide

energy for their power plants. In general, gas fuelled power plants have

lower capital costs, are built faster, work more efficiently and emit less

pollution than other fossil fuel power plants. Technological

improvements in design, efficiency and operation of combined cycle gas

turbines and co-generation processes are favoring the use of natural gas in power generation. A

combined-cycle power plant uses waste heat to produce more electricity, while natural gas co-

generation, also called combined heat and power, produces power and heat that is useful for

industry as well as commercial users. This cogeneration reduces pollution emission considerably.

Natural Gas Vehicles (NGVs)

NGVs are natural gas powered vehicles. Natural gas can be used as a motor vehicle fuel in two

ways: as compressed natural gas (CNG), which is the most common form, and as liquefied

natural gas. Natural gas vehicles fleet accounts for about one and a half million vehicles

worldwide (according to the International Natural Gas Vehicles Association). Concerns about air

quality in most parts of the world are increasing the interest in

using natural gas as a fuel for vehicles. Cars using natural gas are

estimated to emit 20% less greenhouse gases than gasoline or

diesel cars. These vehicles are not a new technology since they

have been used since the 1930s. In many countries NGVs are

introduced to replace buses, taxis and other public vehicle fleets. Natural gas in vehicles is

inexpensive and convenient.

Fuel Cells

A fuel cell is an electrochemical device that combines hydrogen fuel and oxygen from the air to

produce electricity, heat and water. Fuel cells operate without combustion, so they are virtually

pollution free. Since the fuel is converted directly to electricity, a fuel cell can operate at much

higher efficiencies than internal combustion engines, extracting more electricity from the same

amount of fuel. The fuel cell itself has no moving parts, making it a quiet and reliable source of

power. Natural gas is one of the multiple fuels on which fuel cells can operate.

Storage & Transportation

The major difficulty in the use of natural gas is transportation and storage because of its low

density. To overcome this problem, natural gas in converted to Liquefied Natural Gas (LNG).

Liquefied natural gas or LNG is natural gas (Predominantly methane, CH4) that has been

converted temporarily to liquid form for ease of storage or

transport. Liquefied natural gas takes up about 1/600th the

volume of natural gas at a stove burner tip. It is odorless,

colorless, non-toxic and non-corrosive. Hazards include

flammability, freezing and asphyxia.

The liquefaction process involves removal of certain components, such as dust, helium, water,

and heavy hydrocarbons, which could cause difficulty downstream. The natural gas is then

condensed into a liquid at close to atmospheric pressure (Maximum Transport Pressure set

around 25 kPa (3.6 psi)) by cooling it to approximately −163 °C (−260 °F).

The reduction in volume makes it much more cost-efficient to transport over long distances

where pipelines do not exist. Where moving natural gas by

pipelines is not possible or economical, it can be

transported by specially designed cryogenic sea vessels

(LNG carriers) or cryogenic road tankers. The energy

density of LNG is 60% of that of diesel fuel.

Reserves of natural gas

It’s estimated that there are around total 175400 billion 109 Meter 3. Russia has world’s largest

natural gas reserves around 47,570 bbmtu then comes Iran with 26,370.

Data of top five countries with proven Natural gas reserves are as follows-

Russia- 47570

Iran 26370

Qatar 25,790

Saudi Arabia 6,568

United Arab Emirates 5,823

United States 5,551

India 1056(24th position)

In India recently 3 major discoveries has taken places, in K-G basin, first by GSPL in 2007then

in April 2008 Reliance strike again with great discovery of proven reserve , in Nov. 2008

ONGC claimed to strike one more gas reserve. Now after the discovery of Krishna-Godavari

(KG) basin, taking the total gas reserves in the fields to 35.5 trillion cubic feet will place India on

the 12 spot among gas producing countries, next only to Iraq (ranked 11th).

Natural gas; Indian scenario

Gas market in India

Natural gas industry in India is under government control today due to its strategic importance.

Till few years back, the production of natural gas in the country was totally under the control of

two PSUs viz. Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL). However, with

the New Exploration and Licensing Policy

(NELP), private players have been allowed to

participate in exploration and production of

natural gas. Currently, the two PSUs still

account for 83 percent of domestic gas

production. Marketing of gas and pipeline

infrastructure is undertaken by GAIL India Ltd and Companies such as Gujarat Gas Company

Ltd (GGCL), Mahanagar Gas Ltd (MGL) and Indraprastha Gas Ltd (IGL) are engaged in

distribution of gas and are regional players.

Power and fertilizers are the two primary sectors which together account for close to 80 percent

of the gas consumption. Besides,

other sectors such as petrochemicals,

sponge iron and transportation also

consume natural gas. Demand for

natural gas in India for 2003-04 was

estimated at 98 MMSCMD (Metric

Million Standard Cubic Metres per

Day). Against this demand,

allocations made by Ministry of

Petroleum and Natural Gas

(MoPNG) stood at around 120

MMSCMD. Currently, in India,

natural gas forms 8 percent of the primary energy consumption as compared to 24 percent

worldwide.

Structure

Public sector companies play a major role in oil

refineries, oil and gas pipelines and gasoline retail

outlets. Indian Oil Corporation, Bharat Petroleum and

Hindustan Petroleum together account for about 70% of

India’s refining capacity and own/franchise most

gasoline retail outlets. Gas Authority of India Ltd (GAIL) owns and operates a large gas grid.

Reliance Industries and Essar Group are the major Indian Private Sector participants. Reliance is

expanding its Jamnagar refining capacity to 60 MMTA. It is expected to be the single largest

grassroot refinery in the world. Shell has invested in refining and retail; British Gas has invested

in city gas distribution. BP, Total, Exxon Mobil and Eni are also present in India. While they are

currently in marketing lubricants, Total and BP plan to expand in other value chain segments.

Resources(E & P by) Enabling (Gas & LNG

transportation)

Distribution(Market & Users)

Cairn Evolving Gas grids Marketing

ONGC Transmission player- GSPC,Indraprastha Gas,Adani

RIL GAIL,GSPC,RGTL (reliance

grp.)

Possible future Player

GSPC LNG Terminal RIL

Petronet LNG Dahej User

Shell India -Hazira Power, Fertilizer, Petrochemical

Dabhol Terminal Cement etc.

Potential

India is witnessing a high GDP growth rate. Because of this, we can see rapidly growing vehicle

population which will demand better road infrastructure & thus will drive more consumption of

petroleum products. The industry is expected to grow at a CAGR of about 8% to 10%. Over 190

MMT of refining capacity is projected by 2010. Moreover, 120 MMSCMD of additional demand

for Natural Gas is expected in the next five years. Recent gas finds and increased use of gas for

power generation, petrochemicals, fertilizers and city gas distribution has forced us to increase

the production of natural gas as it will surely change the energy requirements scene of the whole

nation.

Still there are several areas of unexploited potential, including city gas distribution, LNG

(import) infrastructure – terminals, regasification and pipelines to industrial consumers. Growing

demand-supply mismatch provides opportunities for investment in the entire value chain for

petroleum (refining, product pipelines, storage and retail) and Natural Gas. For all this, India

needs an investment of $15 billion and $8 billion estimated in refining and marketing

respectively by 2010

Future projection of demand

According to India Hydrocarbon Vision 2025 report, demand for natural gas is expected

to show a sharp rise in the future with the demand reaching to 391 MMSCMD by 2024-25. The

report also expects that the share of natural gas in total energy mix to go up to 20 percent. The

demand for natural gas is expected to grow at a CAGR of more than 7 percent by 2007-08.

The major force behind this demand growth will be investments in

power sector. Government is planning to add power generation

capacity of 41,110 MW under the Tenth Plan and over 60,000 MW in

the Eleventh Plan. Fertilizer sector will fuel this demand further as

major players switch from naphtha to gas as feedstock. Petroleum &

Natural Gas constitutes over 16% of GDP and includes transportation,

refining and marketing of petroleum products and gas. There was $90

billion revenue generated in FY ‘05. India has a crude oil refining

capacity of about 127 MMT. Natural gas demand was about 150 MMSCMD (2004) with only

54% being met through domestic sources. Production of petroleum products has grown at 6.5%

p.a. during the last 3 years.

The last thirty years have seen a shift in the global energy fuel mix towards an increased role for

natural gas. Attractive for its cleaner and more efficient combustion relative to other fossil fuels,

gas has assumed a significant role in power generation, industrial applications, residential

heating and in some cases as a transport fuel as well.

Natural Gas Consumption in India (2006)

Electricity Sector Demand

Within the electricity sector, natural gas competes largely with coal, and the liberalization of the

Indian coal sector, which is haltingly underway, could squelch the rise of natural gas. Such

reforms are likely to make coal a bit more expensive in India, but they will also liberalize large

new coal supplies (both from the country and through imports). Head-to-head, a competitive coal

sector will out-compete gas for most electric power applications because coal is so much cheaper

as a fuel. Failure to reform, on the other hand, could reduce available coal supplies and expand

the window of opportunity for natural gas.

Projected Electricity Generation Mix, 2005-2025

The share of natural gas does increase from 11% to 18% of the electricity market – much of this

fuelled by the new gas supplies projected to come online by 2010 from Reliance and other

private suppliers. Natural gas assumes a large role in generating peaking power, as the model

expects that the Indian load curve will shift from base load-dominated power of today to a load

curve with greater daily variability.

Fertilizer Sector Demand

Within the domestic fertilizer industry, which uses natural gas as a primary (and highly

subsidized) feedstock, India’s fertilizer import policy is the probably the single most important

factor affecting future gas demand. While India currently maintains a domestic self-sufficiency

goal for nitrogenous fertilizer production, this policy is very costly, as it precludes much cheaper

fertilizer imports from countries where natural gas can be sourced cheaply and fertilizer sold to

India on long term contracts. Despite being a relatively high cost producer of fertilizer, India

produces essentially all of the nitrogenous fertilizer it uses – imports are limited to only meeting

unforeseen supply shortfalls. Producers in the nearby Persian Gulf can make fertilizer at less than

half the real Indian cost because cheap natural gas is abundant in the Gulf. A future shift to a

greater role for imports would dramatically reduce domestic gas consumption and lessen the

subsidy burden on the central government.

Industrial Gas Demand

For industrial users, natural gas competes with liquid (oil-based) and solid (coal-based) fuels. In

general, where gas competes with oil, firms find it cost-effective to switch if they can obtain gas

supplies.

Distribution of Industrial Gas Demand, 2006

Industrial Natural Gas Demand Curve, 2025

The demand curve for industrial gas suggests two important findings. First, significant additional

natural gas could be consumed by the industrial sector if gas prices were low enough that gas

could compete directly with coal. That scenario would require gas prices much lower than those

seen in India today.

Second, demand for natural gas is highly inelastic at prices above about $5.00/mmbtu. This is

largely because in this price range, most switching is from oil to natural gas; even at very high

natural gas prices, gas is more economic than oil. This supports the finding that most of the

growth in gas consumption comes from refining and petrochemicals, where coal use is low.

Next figure stacks our projections for gas demand under our reference, high, and low scenarios.

These projections are meant to provide bounds on our projections of Indian gas demand. For

example, the High Gas scenario assumes stringent sulphur constraints in the power sector,

protectionist constraints on fertilizer imports, and high economic growth driving industrial gas

use. The Low Gas scenario assumes vigorous coal sector reforms, liberalized fertilizer imports,

and low economic growth slowing industrial gas demand.

Projected Natural Gas Supplies by Suppliers

Technologies Used for Natural Gas Liquefaction

In general, there are two technological solutions that may be used for LNG plants, and these are:

1) The “open cycle” technology;

2) The “nitrogen expansion cycle” technology.

3) The “Open Cycle” Liquefaction Technology

Advantage of natural gas against other fuel

1) Natural gas is: environmentally clean

2) Natural gas is: economical and efficient

3) Natural gas: has an enviable safety record

1) Natural gas is: environmentally clean

Pollutant emissions from the industrial sector and electric utilities contribute greatly to

environmental problems in the United States. The use of natural gas to power both industrial

boilers and processes and the generation of electricity can significantly improve the emissions

profiles for these two sectors. The transportation sector (particularly cars, trucks, and buses) is

one of the greatest contributors to air pollution in the India. Emissions from vehicles contribute

to smog, low visibility, and various greenhouse gas emissions. About half of all air pollution and

more than 80 percent of air pollution in cities are produced by cars and trucks, buses, two

wheelers and three wheelers in the India. So country needs a clean fuel.

Natural gas is the cleanest burning fossil fuel. Because the combustion process for natural gas

is almost perfect, very few byproducts are emitted into the atmosphere as pollutants. Also, with

the introduction of new technologies, nitrogen oxide, a pollutant targeted by the Clean Air Act

can be significantly reduced. The blue flame seen when natural gas is ignited is a sign of perfect

combustion. Because natural gas burns cleanly; it doesn't leave behind any unpleasant soot, ash,

or odors. Switching to natural gas eliminates the need for an underground storage tank--

eliminating the threat of oil spills, soil contamination and costly environmental clean-up. Or, if

the oil tank is above ground, switching to natural gas eliminates worry about spills or corrosion

of the tank. And-- there's no unsightly storage tank to clutter the appearance of the property.

Natural gas is non-toxic. If inhaled in small amounts natural gas is not poisonous or harmful to

humans. Natural gas is the cleanest of all the fossil fuels. Composed primarily of methane, the

main products of the combustion of natural gas are carbon dioxide and water vapor, the same

compounds we exhale when we breathe. Coal and oil are composed of much more complex

molecules, with a higher carbon ratio and higher nitrogen and sulfur contents. This means that

when combusted, coal and oil release higher levels of harmful emissions, including a higher ratio

of carbon emissions, nitrogen oxides (NOx), and sulfur dioxide (SO2). Coal and fuel oil also

release ash particles into the environment, substances that do not burn but instead are carried into

the atmosphere and contribute to pollution. The combustion of natural gas, on the other hand,

releases very small amounts of sulfur dioxide and nitrogen oxides, virtually no ash or particulate

matter, and lower levels of carbon dioxide, carbon monoxide, and other reactive hydrocarbons

Fossil Fuel Emission Levels 

- Pounds per Billion Btu of Energy Input

Pollutant Natural Gas Oil Coal

Carbon Dioxide 117,000 164,000 208,000

Carbon Monoxide 40 33 208

Nitrogen Oxides 92 448 457

Sulfur Dioxide 1 1,122 2,591

Particulates 7 84 2,744

Mercury 0.000 0.007 0.016

2) Natural gas is: economical and efficient

Natural gas is convenient. The energy source is piped directly to the customer's facility through

the safe, efficient pipeline system. There's no need to store oil on site in tanks, or schedule oil

deliveries. There is an abundant supply of domestic natural gas. Over half of the oil used in this

country is imported. The price and supply of oil is susceptible to international events. Natural gas

is reliable. The pipeline system can't be easily damaged by weather or affected by weather

conditions. In contrast, oil must be trucked to the customer's location, and truck deliveries are

susceptible to weather conditions. Cost of natural gas as compare to other fuel is very low in all

the field power production, in urea production and in transport.

Using natural gas is economical compared with other fuels in power plants

Source: - Goldman Sachs Research estimates.

Table: -Natural gas even at US$6/mmBtu is competitive for urea production

Comparison of domestic urea cost with imported urea (US$/ton)

Table: -Analysis of CNG costs vs. other auto fuels

CNG prices imply cost savings of 50%-70% over conventional auto fuels

Natural gas prices are 50% cost saving option for diesel vehicle and 70% cost saving option for

petrol vehicle.

3) Natural gas: has an enviable safety record

Natural gas are easy to transport as compare to other fuel because it transporting by pipeline that

are more safe option then other liquid gas also uninterrupted because pipeline supply is not

affected by any natural calamity like rain storm and flood. Where as other fuels are Marjory

affected by them. Natural gas not has own odorant. An odorant is added to natural gas by the

producer. When the smell of gas is detected, it signals that a leakage exists and should be fixed.

Natural gas has an excellent tradition of safety.

Major obstruction

There are few obstacles which might can hamper the growth of this sector

Delay in gas production in Domestic field can slow the growth & help sustain the

demand at higher price.

Absence of Exclusive on city gas projects can negatively affect the incumbent.

Slow role out of pipe line infrastructure

References:

http://www.naturalgas.org

http://www.oilandgaseurasia.com

www.petroleum.nic.in

www.ril.com

www.goldmansach.com

www.dgh.nic.in

http://www.financialexpress.com