Mdso-803-Understanding Natual Gas Business

Course Code: MDSO-803
Course Name: Understanding Natural Gas Business

Contents
Unit 1 Natural Gas Chain ............................................................................................... 1
Unit 2 Global Natural Gas Scenario ............................................................................ 23
Unit 3 Domestic Gas Scenario ...................................................................................... 37
Unit 4 End Use Consumption ....................................................................................... 65
Unit 5 Import Options ................................................................................................... 79
Unit 6 Transmission and Distribution ........................................................................ 97
Unit 7 Gas Pricing ........................................................................................................ 121
Unit 8 Regulatory Issues ............................................................................................. 135
Unit 9 Storage Techniques .......................................................................................... 151
Appendix ............................................................................................................................ 155

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UNIT 1 Natural Gas Chain 1
Unit 1 Notes
__________________
__________________
Natural Gas Chain __________________
__________________
__________________
Objectives
__________________
After reading this unit you will be able to understand:
__________________
y The origin and entrapment of Natural Gas.
__________________
y Exploration techniques for Natural Gas.
__________________
y Get an overview of casing, completion, well head storage and
Transportation __________________
Origin
Natural gas is a fossil fuel. Like oil and coal it is, essentially,
the remains of plants and animals and micro organisms 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 origin of fossil

fuels. The most widely accepted theory says that fossil fuels
are formed when organic matter (such as the remains of
plants or animals) are 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
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Notes with oil in deposits that are 1 to 2 miles below the earths
__________________ crust. Deeper deposits, very far underground, usually contain
__________________ primarily natural gas, and in many cases, pure methane.
__________________
Natural gas can also be formed through the transformation
__________________ of organic matter by tiny micro-organisms. This type of
__________________ methane is referred to as biogenic methane. Methanogens,
__________________ tiny methane producing micro-organisms, chemically break
__________________ down organic matter to produce methane. These micro-
__________________ organisms are commonly found in areas near the surface of
__________________
the earth that are void of oxygen. These micro-organisms
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.
The natural gas trapped under the earth in this fashion, can
be recovered by drilling a hole through the impermeable rock.
Gas in these reservoirs is typically under pressure, allowing
it to escape from the reservoir on its own.
In additioin to being found in a traditional reservoir, natural

gas may also be found in other unconventional formations.
Naturally occurring natural gas was discovered and

identified in America as early as 1626, when French explorers
discovered natives igniting gases that were seeping into and
around Lake Erie. The American natural gas industry got
its beginnings in this area. In 1859, Colonel Edwin Drake (a
former railroad conductor, who adopted the title Colonel
to impress the townspeople) dug the first well. Drake hit oil
and natural gas at 69 feet below the surface of the earth.
Most in the industry characterise this well as the beginning

of the natural gas industry in America. A two-inch diameter
pipeline was built, running 5 and miles from the well to
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the village of Titusville, Pennsylvania. The construction of Notes
this pipeline proved that natural gas could be brought safely __________________
and relatively easily from its underground source, to be used __________________
for practical purposes. __________________
One of the first lengthy pipelines was constructed in 1891. __________________
This pipeline was 120 miles long, and carried natural gas __________________
from wells in central Indiana to the city of Chicago. However, __________________
this early pipeline was very rudimentary, and was not very __________________
efficient at transporting natural gas. It wasnt until the 1920s __________________
that any significant effort was put into building a pipeline __________________
infrastructure. However, it wasnt until after the World
__________________
War II that welding techniques, pipe rolling, and
metallurgical advances allowed for the construction of
reliable pipelines. This post-war pipeline construction boom
lasted well into the 60s, and allowed for the construction of
thousands of miles of pipeline in America.
Once the transportation of natural gas was possible, new uses

for natural gas were discovered. These included using natural
gas to heat homes and operate appliances such as water
heaters and oven ranges. Industry began to use natural gas
in manufacturing and processing plants. Also, natural gas
was used to heat boilers used to generate electricity. The
transportation infrastructure had made natural gas easy to
obtain, and it was becoming an increasingly popular form of
energy. For information on modern methods of natural gas
exploration, extraction, and transportation
How the Natural Gas is trapped?

Most of the worlds resources of petroleum lie deep
underground in traps of one kind or another. Rocks are also
formed by weathering and erosional processes that transport
and deposit sediments. During all these geologist changes,
natural gas becomes trapped underground in reservoirs that
produce gas or oil.
Inaddition to reservoir rock quality, the accumulation of

natural gas depends on the source of organic matter to
generate hydrocarbon, pathways for the hydrocarbon to move
into the reservoir rock and the adjacent rock that traps the
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Notes hydrocarbon and prevents them from migrating further.

__________________ Natural Gas in a single reservoir has specific characteristics,
__________________ but these can differ greatly from one reservoir to another in
__________________ the same gas field.
__________________
Structural Traps
__________________
__________________ Structural traps are created when pressure and other
__________________
geological processes deform or fracture the reservoir rocks.
Most often, gas and oil are found in geological structure called
__________________
anticlines, where layers of rock have been gently folded
__________________
upward to form an arch above the petroleum. If the rock
__________________
layers are folded down ward instead of upward ,the
structure is called syncline. Domes are uplifts similar to
anticlines. They both form high points in the reservoir rock.
These structures were the first type of hydrocarbon traps to
be recognized by exploration geologists. Domes and anticlines
are usually asymmertrical and contain more than one gas
producing layer.
When rocks are fractured and large sections have slipped

past one another, the structure is called faults. Fractures
can also trap gas by increasing the permeability of fine grained
sedimentary rocks such as shales and chalks.
Stratigraphic Traps
Stratigraphic traps are formed when the rocks porosity or
permeability changes, preventing gas from migrating out of
the rock. Stratigraphic traps are created while the reservoir
rocks are being deposited.
Combination Traps
Combination traps have both structural and stratigraphic
elements. The largest gas field in the North American
continent, the Hugoton- Panhandle field, stretching across
Texas,Oklahoma and Kansas is a combination trap that will
eventually produce 70Tcf of natural gas.
A salt dome is another type of combination trap where a large

mass of salt rises through sedimentary layers above it to form
a plug shaped structure. Hundreds of these salt domes
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lie in sedimentary rocks on the bottom of Gulf of Mexico and Notes
along the Gulfs coastal plain. __________________
__________________
Processes involved in Natural gas
__________________
The process of getting natural gas out of the ground, and to __________________
its final destination where it is to be used, is a complicated __________________
one. There is a great deal of behind-the-scenes activity that __________________
goes into delivering natural gas to your home, even though __________________
it takes only the flick of a switch to turn it on. This section
__________________
provides an overview of the processes that allow the natural
__________________
gas industry to get their product out of the ground, and
__________________
transform it into the natural gas that is used in your homes
and in industry.
n The Exploration section outlines how natural gas is

found, and how companies decide where to drill wells
for it.
n The Extraction section focuses on the drilling process,

and how natural gas is brought from its underground
reservoirs to the surface.
n The Production section discusses what happens once the

well is drilled, including the processing of natural gas
once it is brought out from underground.
n The Transport section outlines how the natural gas is

to be transported from the wellhead and processing
plant, using the extensive network of pipelines
throughout North America.
n The Storage section describes the storage of natural gas,

how it is accomplished, and why it is necessary.
n The Distribution section focuses on the delivery of

natural gas from the major pipelines to the end users,
whoever they may be.
n The Marketing section discusses the role that natural

gas marketers play in getting the gas from the wellhead
to the end user.
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Notes Exploration Techniques

__________________
__________________ Exploratory Wells
__________________ The best way to gain a full understanding of subsurface
__________________ geology and the potential for natural gas deposits to exist in
__________________ a given area is to drill an exploratory well. This consists of
__________________ actually digging into the earths crust to allow geologists to
__________________ study the composition of the underground rock layers in
__________________
detail. In addition to looking for natural gas and petroleum
deposits by drilling an exploratory well, geologists also
__________________
examine the drill cuttings and fluids to gain a better
__________________
understanding of the geologic features of the area.
Logging
Logging refers to performing tests during or after the drilling
process, to allow geologists and drill operators to monitor
the progress of the well drilling and, to gain a clearer picture
of subsurface formations. Logging is also essential during
the drilling process. Monitoring logs can ensure that the
correct drilling equipment is used and that drilling is not
continued if unfavorable conditions develop.
Two of the most prolific and often performed tests include

standard logging and electric logging.
Standard logging consists of examining and recording the

physical aspects of a well. This allows the geologist to
examine the porosity and fluid content of the subsurface rock,
and to gain a better understanding of the earth in which the
well is being drilled.
Electric logging consists of lowering a device used to measure

the electric resistance of the rock layers in the down hole
portion of the well. This is done by running an electric current
through the rock formation and measuring the resistance
that it encounters along its way. This gives geologists an idea
of the fluid content and characteristics of the well.
The drilling of an exploratory or developing well is the first

contact that a geologist or petroleum engineer has with the
actual contents of the subsurface geology.
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Data Interpretation Notes
__________________
There are many sources of data and information for the
__________________
geologist and geophysicist to use in the exploration for
__________________
hydrocarbons. However, this raw data alone would be useless
without careful and methodical interpretation. Much like __________________
putting together a puzzle, the geophysicist uses all of the __________________

sources of data available to create a model, or educated guess, __________________
as to the structure of the layers of rock under the ground. __________________
Some techniques, including seismic exploration, lend __________________
themselves well to the construction of a hand or computer
__________________
generated visual interpretation of underground formation.
__________________
Other sources of data, such as that obtained from core
samples or logging, are taken into account by the geologist
when determining the subsurface geological structures.
2-D Seismic Interpretation

Two-dimensional seismic imaging refers to geophysicists
using the data collected from seismic exploration activities
to develop a cross-sectional picture of the underground rock
formations. The geophysicist interprets the seismic data
obtained from the field, taking the vibration recordings of
the seismograph and using them to develop a conceptual
model of the composition and thickness of the various layers
of rock underground. This process is normally used to map
underground formations, and to make estimates based on
the geologic structures to determine where it is likely that
deposits may exist.
3-D Seismic Imaging

3-D imaging utilizes seismic field data to generate a three
dimensional picture of underground formations and geologic
features. This, in essence, allows the geophysicist and
geologist to see a clear picture of the composition of the
earths crust in a particular area. Obviously, this is
tremendously useful in allowing for the exploration of
petroleum and natural gas, as an actual image could be used
to estimate the probability of formations existing in a
particular area, and the characteristics of that potential
formation. This technology has been extremely successful in
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Notes raising the success rate of exploration efforts. In fact, using

__________________ 3-D seismic has been estimated to increase the likelihood of
__________________ successful reservoir location by 50 percent!
__________________
Although this technology is very useful, it is also very costly.
__________________ 3-D seismic imaging can cost anywhere up to $1 million per
__________________ 50 square mile area. The generation of 3-D images requires
__________________ data to be collected from several thousand locations, as
__________________ opposed to 2-D imaging, which only requires several hundred
__________________ data points. As such, 3-D imaging is a much more involved
__________________
and prolonged process. Therefore, it is usually used in
conjunction with other exploration techniques.
__________________
3-D seismic imaging has become an extremely important tool
in the search for oil and natural gas. By 1980, only 100 3-D
seismic imaging tests had been performed. However, by the
mid 90s, 200 to 300 3-D seismic surveys were being performed
each year. In 1996, in the Gulf of Mexico, one of the largest
offshore oil and gas producing areas in the U.S., nearly 80
percent of wells drilled in the gulf were based on 3-D seismic
data. In 1993, 75 percent of all onshore exploratory surveys
conducted used 3-D seismic imaging.
2-D Seismic Imaging

Two dimensional computer assisted exploration includes
generating an image of subsurface geology much in the same
manner as in normal 2-D data interpretation. However, with
the aid of computer technology, it is possible to generate
much more detailed maps much quicker than the traditional
method. In addition, with 2-D CAEX it is possible to use color
graphic displays generated by a computer to highlight
geologic features that may not be apparent using traditional
2-D seismic imaging methods.
While 2-D seismic imaging is less complicated and less

detailed than 3-D imaging, it must be noted that 3-D imaging
techniques were developed prior to 2-D techniques. Thus,
although it does not appear to be the logical progression of
techniques, the simpler 2-D imaging techniques were actually
an extension of 3-D techniques, not the other way around.
Because it is simpler, 2-D imaging is much cheaper, and more
easily and quickly performed, than 3-D imaging. Because of
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this, 2-D CAEX imaging may be used in areas that are Notes
somewhat likely to contain natural gas deposits, but not likely __________________
enough to justify the full cost and time commitment required __________________
by 3-D imaging. __________________
__________________
4-D Seismic Imaging
__________________
One of the latest breakthroughs in seismic exploration, and __________________
the modeling of underground rock formations, has been the __________________
introduction of four-dimensional (4-D) seismic imaging. This
__________________
type of imaging is an extension of 3-D imaging technology.
__________________
However, instead of achieving a simple, static image of the
__________________
underground, in 4-D imaging the changes in structures and
properties of underground formations are observed over
time. Since the fourth dimension in 4-D imaging is time, it is
also referred to as 4-D time lapse imaging.
Extraction of Natural Gas
Once a potential natural gas deposit has been located by a

team of exploration geologists and geophysicists, it is up to
a team of drilling experts to actually dig down to where the
natural gas is thought to exist. This section will describe the
process of drilling for natural gas, both onshore and offshore.
Although the process of digging deep into the Earths crust
to find deposits of natural gas that may or may not actually
exist seems daunting, the industry has developed a number
of innovative techniques which both decrease the cost and
increase the efficiency of drilling for natural gas. The
advancement of technology has also contributed greatly to
the increased efficiency and success rate for drilling natural
gas wells.
The decision whether or not to drill a well depends on a

variety of factors, not the least of which are the economic
characteristics of the potential natural gas reservoir. It costs
a great deal of money for exploration and production
companies to search and drill for natural gas, and there is
always the inherent risk that no natural gas will be found.
The exact placement of the drill site depends on a variety of

factors, including the nature of the potential formation to be
drilled, the characteristics of the subsurface geology, and the
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Notes depth and size of the target deposit. After the geophysical
__________________ team identifies the optimal location for a well, it is necessary
__________________ for the drilling company to ensure that they complete all the
__________________ necessary steps to ensure that they can legally drill in that
__________________ area.
__________________ If the new well, once drilled, does in fact come in contact
__________________ with natural gas deposits, it is developed to allow for the
__________________ extraction of this natural gas, and is termed a development
__________________ or productive well. At this point, with the well drilled and
__________________
hydrocarbons present, the well may be completed to
facilitate its production of natural gas.
__________________
Production
This process includes strengthening the well hole with

casing, evaluating the pressure and temperature of the
formation, and then installing the proper equipment to
ensure an efficient flow of natural gas out of the well.
Completing a well consists of a number of steps; installing

the well casing, completing the well, installing the wellhead,
and installing lifting equipment or treating the formation
should that be required. Click on the links below to learn
about these aspects of the well completion process:
n Well Casing
n Completion
n The Wellhead
n Lifting and Well Treatment
Well Casing
Installing well casing is an important part of the drilling and

completion process. Well casing consists of a series of metal
tubes installed in the freshly drilled hole. Casing serves to
strengthen the sides of the well hole, ensure that no oil or
natural gas seeps out of the well hole as it is brought to the
surface, and to keep other fluids or gases from seeping into
the formation through the well. A good deal of planning is
necessary to ensure that the proper casing for each well is
installed. Types of casing used depend on the subsurface
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characteristics of the well, including the diameter of the well Notes
(which is dependent on the size of the drill bit used) and the __________________
pressures and temperatures experienced throughout the __________________
well. In most wells, the diameter of the well hole decreases __________________
the deeper it is drilled, leading to a type of conical shape __________________
that must be taken into account when installing casing. There
__________________
are five different types of well casing. They include:
__________________
n Conductor Casing __________________
__________________
n Surface Casing
__________________
n Intermediate Casing
__________________
n Liner String
n Production Casing
Completion
Well completion commonly refers to the process of finishing

a well so that it is ready to produce oil or natural gas. In
essence, completion consists of deciding on the characteristics
of the intake portion of the well in the targeted hydrocarbon
formation. There are a number of types of completions,
including:
n Open Hole Completion
n Conventional Perforated Completion
n Sand Exclusion Completion
n Permanent Completion
n Multiple Zone Completion
n Drainhole Completion
The use of any type of completion depends on the

characteristics and location of the hydrocarbon formation to
be mined.
Open Hole Completion
Open hole completions are the most basic type and are only
used in very competent formations, which are unlikely to
cave in. An open hole completion consists of simply running
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Notes the casing directly down into the formation, leaving the end
__________________ of the piping open, without any other protective filter. Very
__________________ often, this type of completion is used on formations that have
__________________ been treated with hydraulic or acid fracturing.
__________________ Conventional Perforated Completion
__________________
Conventional perforated completions consist of production
__________________
casing being run through the formation. The sides of this
__________________
casing are perforated, with tiny holes along the sides facing
__________________
the formation, which allows for the flow of hydrocarbons into
__________________ the well hole, but still provides a suitable amount of support
__________________ and protection for the well hole. The process of actually
perforating the casing involves the use of specialized
equipment designed to make tiny holes through the casing,
cementing, and any other barrier between the formation and
the open well. In the past, bullet perforators were used,
which were essentially small guns lowered into the well. The
guns, when fired from the surface, sent off small bullets that
penetrated the casing and cement. Today, jet perforating is
preferred. This consists of small, electrically ignited charges,
lowered into the well. When ignited, these charges poke tiny
holes through the formation, in the same manner as bullet
perforating.
Sand Exclusion Completion
Sand exclusion completions are designed for production in

an area that contains a large amount of loose sand. These
completions are designed to allow for the flow of natural gas
and oil into the well, but at the same time prevent sand from
entering the well. Sand inside the well hole can cause many
complications, including erosion of casing and other
equipment. The most common method of keeping sand out
of the well hole are screening, or filtering systems. This
includes analyzing the sand experienced in the formation
and installing a screen or filter to keep sand particles out.
This filter may either be a type of screen hung inside the
casing, or adding a layer of specially sized gravel outside the
casing to filter out the sand. Both of these types of sand
barriers can be used in open hole and perforated completions.
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Permanent Completion Notes
__________________
Permanent completions are those in which the completion,
__________________
and wellhead, are assembled and installed only once.
__________________
Installing the casing, cementing, perforating, and other
completion work is done with small diameter tools to ensure __________________
the permanent nature of the completion. Completing a well __________________
in this manner can lead to significant cost savings compared __________________
to other types. __________________
Multiple Zone Completion __________________

__________________
Multiple zone completion is the practice of completing a well
__________________
such that hydrocarbons from two or more formations may be
produced simultaneously, without mixing with each other.
For example, a well may be drilled that passes through a
number of formations on its way deeper underground, or
alternately, it may be efficient in a horizontal well to add
multiple completions to drain the formation most effectively.
Although it is common to separate multiple completions so
that the fluids from the different formations do not
intermingle, the complexity of achieving complete separation
is often a barrier. In some instances, the different formations
being drilled are close enough in nature to allow fluids to
intermingle in the well hole. When it is necessary to separate
different completions, hard rubber packing instruments are
used to maintain separation.
Drainhole Completion
Drainhole completions are a form of horizontal or slant

drilling. This type of completion consists of drilling out
horizontally into the formation from a vertical well,
essentially providing a drain for the hydrocarbons to run
down into the well. In certain formations, drilling a drainhole
completion may allow for more efficient and balanced
extraction of the targeted hydrocarbons. These completions
are more commonly associated with oil wells than with
natural gas wells.
The Wellhead
The wellhead consists of the pieces of equipment mounted
at the opening of the well to regulate and monitor the
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Notes extraction of hydrocarbons from the underground formation.

__________________ It also prevents leaking of oil or natural gas out of the well,
__________________ and prevents blowout highpressure formations. Formations
__________________ that are under high pressure typically require wellheads that
__________________ can withstand a great deal of upward pressure from the
escaping gases and liquids. These wellheads must be able to
__________________
withstand pressures of up to 20,000 psi (pounds per square
__________________
inch). The wellhead consists of three components: the casing
__________________
head, the tubing head, and the christmas tree.
__________________
__________________
The casing head consists of heavy fittings that provide a seal
between the casing and the surface. The casing head also
__________________
serves to support the entire length of casing that is run all
the way down the well. This piece of equipment typically
contains a gripping mechanism that ensures a tight seal
between the head and the casing itself.
The tubing head is much like the casing head. It provides a

seal between the tubing, which is run inside the casing, and
the surface. Like the casing head, the tubing head is designed
to support the entire length of the casing, as well as provide
connections at the surface, which allow the flow of fluids out
of the well to be controlled.
The christmas tree is the piece of equipment that fits atop

the casing and tubing heads, and contains tubes and valves
that serve to control the flow of hydrocarbons and other fluids
out of the well. It commonly contains many branches and is
shaped somewhat like a tree, thus its name, christmas tree.
The christmas tree is the most visible part of a producing
well, and allows for the surface monitoring and regulation
of the production of hydrocarbons from a producing well.
Lifting and Well Treatment

Once the well is completed, it may begin to produce natural
gas. In some instances, the hydrocarbons that exist in
pressurized formations will naturally rise up through the
well to the surface. This is most commonly the case with
natural gas. Since natural gas is lighter than air, once a
conduit to the surface is opened, the pressurized gas will
rise to the surface with little or no interference. This is most
common for formations containing natural gas alone, or with
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a light condensate. In these scenarios, once the christmas Notes
tree is installed, the natural gas will flow to the surface on __________________
its own. __________________
__________________
In order to more fully understand the nature of the well, a
potential test is typically run in the early days of production. __________________
This test allows well engineers to determine the maximum __________________

amount of natural gas that the well can produce in a 24 hour __________________
period. From this and other knowledge of the formation, the __________________
engineer may make estimation on what the MER or most __________________
efficient recovery rate will be. The MER is the rate at which __________________
the greatest amount of natural gas may be extracted without
__________________
harming the formation itself. Another important aspect of
producing wells is the decline rate. When a well is first
drilled, the formation is under pressure and produces natural
gas at a very high rate. However, as more and more natural
gas is extracted from the formation, the production rate of
the well decreases. This is known as the decline rate. Certain
techniques, including lifting equipment and well stimulation,
can increase the production rate of a well.
In some natural gas wells, and oil wells that have associated
natural gas, it is more difficult to ensure an efficient flow of
hydrocarbons up the well. The underground formation may
be very tight, making the movement of petroleum through
the formation and up the well a very slow and inefficient
process. In these cases, lifting equipment or well treatment
is required.
Lifting equipment consists of a variety of specialized

equipment used to help lift petroleum out of a formation.
This is most commonly used to extract oil from a formation.
Because oil is found as a viscous liquid, it takes some coaxing
to extract it from underground. Various types of lifting
equipment are available, but the most common lifting method
is known as rod pumping. Rod pumping is powered by a
surface pump that moves a cable and rod up and down in the
well, providing the lifting pressure required to bring the oil
to the surface. The most common type of cable rod lifting
equipment is the horse head or conventional beam pump.
These pumps are recognizable by the distinctive shape of
the cable feeding fixture, which resembles a horses head.
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Notes Well Treatment

__________________
Well treatment is another method of ensuring the efficient
__________________
flow of hydrocarbons out of a formation. Essentially, this type
__________________
of well stimulation consists of injecting acid, water, or gases
__________________ into the well to open up the formation and allow the
__________________ petroleum to flow through the formation more easily.
__________________ Acidizing a well consists of injecting acid (usually
__________________ hydrochloric acid) into the well. In limestone or carbonate
__________________ formations, the acid dissolves portions of the rock in the
__________________
formation, opening up existing spaces to allow for the flow
of petroleum. Fracturing consists of injecting a fluid into the
__________________
well, the pressure of which cracks or opens up fractures
already present in the formation. In addition to the fluid being
injected, propping agents are also used. These propping
agents can consist of sand, glass beads, epoxy, or silica sand,
and serve to prop open the newly widened fissures in the
formation. Hydraulic fracturing involves the injection of
water into the formation, while CO2 fracturing uses gaseous
carbon dioxide. Fracturing, acidizing, and lifting equipment
may all be used on the same well to increase permeability.
These techniques are mostly applicable to oil wells, but have

also been used to increase the extraction rate for gas wells.
Because it is a low-density gas under pressure, the
completion of natural gas wells usually requires little more
than the installation of casing, tubing, and the wellhead.
Unlike oil, natural gas is much easier to extract from an
underground formation. However, as deeper and less
conventional natural gas wells are drilled, it is becoming more
common to use stimulation techniques on gas wells.
The next step in the process of producing natural gas is

processing. This involves taking the raw natural gas
obtained from underground, removing impurities, and
ensuring that the gas is ready for use prior to being
transported to its destination.
Transportation
The efficient and effective movement of natural gas from

producing regions to consumption regions requires an
extensive and elaborate transportation system. In many
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instances, natural gas produced from a particular well will Notes
have to travel a great distance to reach its point of use. The __________________
transportation system for natural gas consists of a complex __________________
network of pipelines, designed to quickly and efficiently __________________
transport natural gas from its origin, to areas of high natural __________________
gas demand. Transportation of natural gas is closely linked
__________________
to its storage, as well; should the natural gas being
__________________
transported not be required at that time, it can be put into
__________________
storage facilities for when it is needed.
__________________
There are essentially three major types of pipelines along __________________
the transportation route: the gathering system, the interstate __________________
pipeline, and the distribution system. The gathering system
consists of low pressure, low diameter pipelines that
transport raw natural gas from the wellhead to the processing
plant. Should natural gas from a particular well have high
sulphur and carbon dioxide contents (sour gas), a specialized
sour gas gathering pipe must be installed. Sour gas is
extremely corrosive and dangerous, thus its transportation
from the wellhead to the sweetening plant must be done
carefully.
Pipelines can be characterized as interstate or intrastate.

Interstate pipelines carry natural gas across state
boundaries, in some cases across the country. Intrastate
pipelines, on the other hand, transport natural gas within a
particular state. This section will cover the fundamentals of
interstate natural gas pipelines, but the technical and
operational details discussed are essentially the same for
intrastate pipelines.
Storage
Natural gas, like most other commodities, can be stored for

an indefinite period of time. The exploration, production,
and transportation of natural gas takes time, and the natural
gas that reaches its destination is not always needed right
away, so it is injected into underground storage facilities.
These storage facilities can be located near market centers
that do not have a ready supply of locally produced natural
gas.
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Notes Traditionally, natural gas has been a seasonal fuel. That is,
__________________ demand for natural gas is usually higher during the winter,
__________________ partly because it is used for heat in residential and
__________________ commercial settings. Stored natural gas plays a vital role in
__________________ ensuring that any excess supply delivered during the summer
months is available to meet the increased demand of the
__________________
winter months. However, with the recent trend towards
__________________
natural gas fired electric generation, demand for natural gas
__________________
during the summer months is now increasing (due to the
__________________ demand for electricity to power air conditioners and the like).
__________________ Natural gas in storage also serves as insurance against any
__________________ unforeseen accidents, natural disasters, or other occurrences
that may affect the production or delivery of natural gas.
Natural gas storage plays a vital role in maintaining the

reliability of supply needed to meet the demands of
consumers. Historically, when natural gas was a regulated
commodity, storage was part of the bundled product sold by
the pipelines to distribution utilities. This all changed in 1992
with the introduction of the Federal Energy Regulatory
Commissions (FERC) Order 636, which opened up the
natural gas market to deregulation. Essentially, this meant
that where natural gas storage was required prior to Order
636 for the operational requirements of the pipelines in
meeting the needs of the utilities, it is now available to
anyone seeking storage for commercial purposes or
operational requirements. Storage used to serve only as a
buffer between transportation and distribution, to ensure
adequate supplies of natural gas were in place for seasonal
demand shifts, and unexpected demand surges. Now, in
addition to serving those purposes, natural gas storage is
also used by industry participants for commercial reasons;
storing gas when prices are low, and withdrawing and selling
it when prices are high, for instance. The purpose and use of
storage has been closely linked to the regulatory environment
of the time.
Distribution
Distribution is the final step in delivering natural gas to end

users. While some large industrial, commercial, and electric
generation customers receive natural gas directly from high
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capacity interstate and intrastate pipelines (usually Notes
contracted through natural gas marketing companies), most __________________
other users receive natural gas from a local distribution __________________
company (LDC). LDCs are companies involved in the delivery __________________
of natural gas to consumers within a specific geographic area. __________________
There are two basic types of local distribution companies:
__________________
those owned by investors, and public gas systems owned by
__________________
local governments.
__________________
Local distribution companies typically transport natural gas __________________
from delivery points along interstate and intrastate pipelines __________________
through thousands of miles of small-diameter distribution
__________________
pipes. Delivery points to LDCs, especially for large
municipal areas, are often termed citygates, and are
important market centers for the pricing of natural gas.
Typically, LDCs take ownership of the natural gas at the
citygate, and deliver it to each individual customers location
of use. This requires an extensive network of small-diameter
distribution pipe; it has been estimated that there exist over
one million miles of distribution pipe in the United States.
Because of the transportation infrastructure required to

move natural gas to many diverse customers across a
reasonably wide geographic area, distribution costs typically
make up the majority of natural gas costs for small volume
end users. While large pipelines can reduce unit costs by
transmitting large volumes of natural gas, distribution
companies must deliver relatively small volumes to many
more different locations. In fact, according to the Energy
Information Administration (EIA), for the typical small
volume residential natural gas consumer, distribution costs
can represent up to 47 percent of the natural gas bill. As
shown, commodity costs (the physical natural gas itself)
represent about 34 percent of residential consumers bill, and
transmission (by large interstate and intrastate pipelines)
and storage costs make up about 19 percent.
Marketing
Natural gas marketing is a relatively new addition to the

natural gas industry. Prior to the deregulation of the natural
gas commodity market and the introduction of open access
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Notes for everyone to natural gas pipelines, there was no role for
__________________ natural gas marketers. Producers sold to pipelines, who sold
__________________ to local distribution companies and other large volume
__________________ natural gas users. Local distribution companies sold the
__________________ natural gas purchased from the pipelines to retail end users,
including commercial and residential customers. Price
__________________
regulation at all levels of this supply chain left no place for
__________________
others to buy and sell natural gas. However, with the newly
__________________
accessible competitive markets introduced gradually over
__________________ the past fifteen years, natural gas marketing has become an
__________________ integral component of the natural gas industry. In fact, the
__________________ first marketers were a direct result of interstate pipelines
attempting to recoup losses associated with long term
contracts entered into as a result of the oversupply problems
of the early 1980s.
Natural gas marketing may be defined as the selling of

natural gas. In even looser terms, marketing can be referred
to as the process of coordinating, at various levels, the
business of bringing natural gas from the wellhead to end-
users. The role of natural gas marketers is quite complex,
and does not fit exactly into any one spot in the natural gas
supply chain. Marketers may be affiliates of producers,
pipelines, and local utilities, or may be separate business
entities unaffiliated with any other players in the natural
gas industry. Marketers, in whatever form, find buyers for
natural gas, ensure secure supplies of natural gas in the
market, and provide a pathway for natural gas to reach the
end-user. It is natural gas marketers that ensure a liquid,
transparent market exists for natural gas. Marketing natural
gas can include all of the intermediate steps that a particular
purchase requires; including arranging transportation,
storage, accounting, and basically any other step required to
facilitate the sale of natural gas.
Advantages of Natural Gas

Natural gas is environmentally clean
n 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
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as pollutants. Also, with the introduction of new Notes
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. __________________
n Because natural gas burns cleanly, it doesnt leave __________________

behind any unpleasant soot, ash, or odours. __________________
__________________
n Switching to natural gas eliminates the need for an
__________________
underground storage tankeliminating the threat of oil
spills, soil contamination and costly environmental __________________
clean-up. __________________
n Or, if the oil tank is above ground, switching to natural

gas eliminates worry about spills or corrosion of the tank.
And theres no unsightly storage tank to clutter the
appearance of the property.
n Natural gas is non-toxic. If inhaled in small amounts

natural gas is not poisonous or harmful to humans.
Natural gas is: economical and efficient
Natural gas is a convenient energy source and is piped

directly to the customers facility through the safe, efficient
pipeline system. Theres 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 cant be easily

damaged by weather or affected by weather conditions. In
contrast, oil must be trucked to the customers location, and
truck deliveries are susceptible to weather conditions.
Natural gas is safe
Gas is safe to use. An odorant is added to natural gas by the

producer. When the smell of gas is detected, it signals that a
leakage exists and an adjustment should be made.
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UNIT 2 Global Natural Gas Scenario 23
Unit 2 Notes
__________________
__________________
Global Natural Gas __________________
Scenario __________________
__________________
__________________
Objectives __________________
After reading this unit you will be able to understand: __________________
y Entire Globas Gas Scenario. __________________
y Product Profile, Reserves Status and End use Consumption of __________________
gas.
y Pricing and Regulatory framework.
y New Evolving Technology in the horizon of Natural Gas.
Background
Natural Gas: Natural Gass share in Indias energy mix has
increased from 2.5% in the early 1980s to > 7% in 2003. The
total proven reserves of natural gas in India as at the end of
2001 was 650 billion cubic meters (bcm). Indias reserves are
likely to last for around 21 years; that is marginally longer
than the 18 years estimated for oil reserves. Domestic
Production has received a major boost with the discovery of
gas in KG Basin of the Eastern Coast and Shahdol in Madhya
Pradesh.
Due to its clean fuel qualities natural gas is being increasingly

preferred as an alternative fuel. Fertilizers and Power are
the major consumers of natural gas (around 80%) in India.
Demand for natural gas is forecasted to grow by 7% annually
till 2010 and it is predicted that the demand will outstrip
supply, as indicated by the statistics given in Table 2.1. As a
result, LNG imports are considered as a viable option.
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Notes Table 2.1: Estimated Energy Demand

__________________
__________________ Demand (in Original -
Primary Energy Unit Demand (Mtoe)
Units)
__________________
__________________ 2006-07 2011-12 2006-07 2011-12
__________________ Coal MMT 446.59 620.00 184.23 254.93

Lignite MMT 57.79 81.54 15.51 22.05
__________________
Oil MMT 134.50 172.47 144.58 185.40
__________________
Natural gas BCM 47.45 64.00 42.70 57.60
__________________
__________________ Hydro Power BkWh 148.08 215.66 12.73 18.54
__________________ Nuclear Power BkWh 23.15 54.74 6.04 14.16
Wind Power BkWh 4.00 11.62 0.35 1.00
Total Commercial Energy 406.14 553.68

Non-Commercial Energy 151.30 170.25
Total Energy Demand 557.44 723.93
MMT: Million Tonnes; BCM : Billion Cubic Meter;

BkWh: Billion kilo watt hour
Source: Tenth Five Year Plan for Energy Sector
India has seen an expansion in the total energy use during

the last five decades with a shift from non-commercial to
commercial sources of energy. The primary energy basket of
India is dominated by coal with natural gas accounting for
9% share.
Physical Properties and Product Profile

Product Profile
Natural gas is a mixture of hydrocarbon gases (Table 2.2)
and is a colourless, odourless fuel that burns cleaner than
many other traditional fossil fuels. It occurs deep below the
surface of the earth in three principal forms- associated gas,
non-associated gas and gas condensate. Associated gas is
found in crude oil reservoirs, either dissolved in the crude
oil or in conjunction with the crude oil deposits. Non-
Associated gas occurs in reservoirs separate from crude oil
wells. It is also termed as dry gas. Gas condensate is the
hydrocarbon liquid dissolved in saturated natural gas that
comes out of solution when pressure drops below dew point.
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Table 2.2: Fractions and Application of Natural Gas Notes
__________________
Fraction Common Name Applications
__________________
C1 Methane Fuel and feedstock for urea plants and fuel for
power plants __________________
C2 Ethane Production of petrochemicals __________________
C3 Propane Production of petrochemicals, LPG, auto fuels __________________

and industrial fuels __________________
C4 Butane Production of LPG __________________
C5 and Other Fractions Production of solvents and Pentane __________________
heavier __________________
__________________
Natural gas offers a multitude of advantages:
n It is a clean, efficient, safe and environment-friendly

fuel.
n No storage yard is required as gas is delivered directly

at the end of the pipe.
n There is no risk of breakdown in fuel supply due to order

processing delays to replenish the fuel inventory.
n It has become the preferred fuel in power and fertilizer

sectors.
n It minimizes the manpower and mechanical power

required for handling the fuel.
Reserves Status
India accounts for 0.4% of worlds total natural gas reserves.
As on April 1, 2004, the initial in-place reserves were 2329
MMT. The ultimate reserves were 1380 MMT and balance
recoverable reserves were around 920 MMT. At the current
rate of production, the natural gas reserves are expected to
last for 28 years.
Natural Gas Production

The main producers of natural gas in India are National Oil
Companies (NOCs) - Oil and Natural Gas Corporation
(ONGC) and Oil India Ltd (OIL). Under the Production
Sharing Contracts, private parties also produce gas from
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Notes some of the fields. The Government has also offered blocks
__________________ under New Exploration Licensing Policy (NELP) to private
__________________ and public sector companies with the right to market gas at
__________________ market determined prices.
__________________ The total production of natural gas in 2003-04 was 31.96 BCM
__________________ (90 MMscmd) as compared to 31.39 BCM in 2002-03. NOCs
__________________ accounted for 80% of the total natural gas production while
__________________ the private and joint venture companies accounted for the
__________________ remaining 20%. Apropos the area-wise production, the
__________________
onshore region accounted for 28% of natural gas production
while the offshore region contributed 72%.
__________________
Under NELP, bidding for four rounds has been held so far
and a total of 90 blocks have been awarded under these
rounds. A total of 24 blocks were awarded under NELP-I, 23
blocks each were awarded under NELP-II and NELP-III. In
NELP-IV, 20 blocks were awarded. In January 2005, the
Government launched the NELP-V round. The exploration
activities under NELP have started showing positive results
with discoveries made in Krishna-Godavari (KG) deepwater
and in Cambay onland. Reliance Industries Ltd discovered
giant gas fields in KG Basin in KG-DWN-98/3 block. This
block is expected to hold in-place reserves of 10-14 tcf. The
production capacity of the block is estimated to be about 40-
60 MMscmd over 15 to 20 years beginning from August 2007
onwards. Consortium of Reliance and Niko has also struck
gas in Orissa in NEC-OSN-97/2 block. The initial estimates
have indicated in-place reserves of 4-5 tcf. This discovery
will yield around 20 MMscmd of gas from 2008 onwards.
In deep-water block KG-DWN-98/2, Cairn Energy Pvt. Ltd.

made three important discoveries: Annapurna, Padmavati
and Kanaka Durga. The first discovery Annapurna has tested
gas. It is expected to hold in place reserves of 0.75-1 tcf and
is expected to supply 3 MMscmd of gas from 2006. In the
Gulf of Cambay block CB-OS/2, operated by Cairn Energy,
four hydrocarbon-bearing structures: Lakshmi, Gauri, Ambe
and Parvati were discovered. The Lakshmi field has been on
regular gas production at the rate of 3 MMscmd since
November 2002. The recoverable reserves in the Lakshmi
field are expected to be around 350 bcf. Two of the other
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fields, Gauri and Ambe, have tested commercial oil or gas Notes
but the potential of the Parvati field is yet to be established. __________________
Gauri is expected to hold in place reserves of 0.12 tcf and __________________
was declared commercial in July 2002. In September 2004, __________________
the discovery named CB-X was made in the same block and __________________
it is expected to hold 4-7 bcf of gas. Several significant onshore
__________________
and offshore discoveries have also been made by ONGC and
__________________
OIL in last two years.
__________________
In January 2004, the Indo-Korean consortium comprising of __________________
ONGC Videsh Limited, GAIL, Daewoo International __________________
Corporation and Korea Gas Corporation discovered a world __________________
class giant gas field in an exploration block in Myanmar
when a large deposit of gas was struck in the first exploratory
well SHWE-1. The recoverable reserves of the SHWE
discovery are estimated to be 6 tcf while the recoverable
reserves of Block A-1 are estimated to be 10 tcf.
In February 2004, the first LNG terminal, Dahej LNG

terminal was dedicated to the nation. The terminal began
its commercial operations in April 2004. Till March 2005, the
terminal operated at a capacity of 2.5 MMtpa. From April 1,
2005, the terminal scaled its capacity to 5 MMtpa.
Substantial efforts are being made to develop alternate

sources of natural gas like Gas Hydrates, Coal Bed Methane,
etc., to meet the long-term energy demand of the country in
an enormous and environment friendly way.
End-use Consumption of gas

Out of the total availability of 90 MMscmd of gas in 2003-04,
internal consumption accounted for 16 MMscmd. Of the rest
74 MMscmd, the private and joint venture companies
marketed 7 MMscmd of gas while ONGC sold 0.5 MMscmd
of gas. The remaining 66.5 MMscmd of gas was supplied under
the Administered Pricing Mechanism. Power sector
consumed 41% of the gas, fertilizer sector accounted for 32%
of the consumption. Sponge iron and transport sector
accounted for 4% and 3% respectively. The rest 20% was
consumed by other sectors.
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Notes Demand-Supply projections

__________________
For optimum utilization of natural gas, each and every unit
__________________
of gas needs to be carefully planned. According to the
__________________
Marketing & Development Research Associates (MDRA),
__________________
Report prepared for GAIL, the demand-supply gap for
__________________ natural gas would be around 115 MMscmd in 2008-09 under
__________________ conservative supply scenario and 17 MMscmd under
__________________ optimistic supply scenario. (Tables 2.3 and 2.4)
__________________
Table 2.4: Natural Gas Demand Potential
__________________
__________________ Sector 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Power 74.12 87.01 137.16 149.94 155.99 159.74
Fertilizer 43.75 43.75 53.97 57.17 57.17 58.77
Steel 15.93 17.68 19.54 21.60 23.99 26.64
Petrochemicals 13.16 13.16 13.16 13.16 13.16 13.16
Industrial 12.11 13.04 14.47 15.92 17.36 18.92
City Gas 2.96 5.74 8.77 12,07 15.64 19.49
Total 162.03 180.38 247.07 269.86 283.30 296.71
Source: MDRA Report prepared for GAIL, 2003
Table 2.4: Demand-Supply Gap
2004-05 2005-06 2006-07 2007-08 2008-09
Demand Scenario (A) 162.03 180.38 247.07 269.86 283.3
Supply Conservative Scenario (B) 81.17 103.12 158.65 164.49 169.16

Supply Optimistic Scenario (C) 81.17 103.17 164.25 205.49 267.16
Gap (A-B) 80.86 77.26 88.42 105.37 114.14
Gap (A-C) 80.86 77.21 82.82 64.37 16.14
Global Demand-supply Outlook

Import Options
Keeping in view the increasing demand-supply gap, there is
a need to augment the availability of natural gas through
import of gas via pipelines or in form of Liquefied Natural
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Gas (LNG). Transnational pipelines are more economical mode Notes
of gas trade but involve resolution of the various geo-political __________________
and security issues. LNG is natural gas converted to liquid __________________
form by cooling it at -1610 C. This cooling reduces its volume __________________
by 600 times. Then, it can be transported through special
__________________
cryogenic tankers to the LNG regasification terminal. At the
__________________
regasification terminal, the LNG is regasified and thereafter,
it is transported to the consumers through pipelines. __________________
__________________
Petronet LNG & Shell have started work on developing
__________________
import terminals for LNG. While Petronet LNG has already
__________________
set-up a LNG terminal in Dahej and plans to set up another
one, Shell is about to complete a Terminal in Hazira. __________________
Since the early 90s a number of initiatives have been

undertaken bilaterally at Government-to-Government level,
by multilateral agencies like ADB as well as by international
companies like Unocal, Shell and Cairn for development of
transnational gas pipeline projects to supply the Indian
market. The various pipeline options that are being
considered for import of gas are:
n Iran-Pakistan-India pipeline
n Myanmar-Bangladesh-India pipeline
n Turkmenistan-Afghanistan-Pakistan pipeline (may be
extended to India)
Petronet LNG Ltd. (PLL), which is a Joint venture of IOC,

ONGC, BPCL and GAIL, has developed the LNG terminal
at Dahej. The terminal with a capacity of 5 MMtpa was
commissioned in April 2004. Shell Hazira LNG terminal was
to be commissioned in April 2005. Kochi LNG terminal is
anticipated to come up by 2008. Dabhol LNG terminal may
become operational in next two years subject to the resolution
of various legal and financial issues. Efforts are also being
made to implement Ennore and Krishnapatnam LNG
terminal projects. The development of these terminals will
depend on the demand build up of gas.
Transmission and Distribution

The existing gas pipeline infrastructure in India spans over
6570 km. At present, the main players in the gas pipeline
sector are GAIL, Gujarat State Petroleum Corporation
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Notes (GSPC), Assam Gas Company and Gujarat Gas Company

__________________ Ltd. GAIL is the largest gas transmission and marketing
__________________ company in the country and handles approximately 85% of
__________________ the total amount of natural gas transmitted by pipeline in
__________________ India.
__________________ The Hazira-Vijaipur-Jagdishpur gas pipeline network is the
__________________ first cross-country gas pipeline project. The 1,700 km long
__________________ HVJ pipeline system was commissioned in 1987-88. In March
__________________ 2004, GAIL successfully commissioned 610 km Dahej-Vijaipur
__________________
pipeline project, increasing the length of HVJ pipeline to
3300 km. GAIL is developing a 520 km Dahej-Uran pipeline.
__________________
The other pipeline projects of GAIL include 139 km Thulendi-
Phulpur pipeline, 114 km Dadri-Panipat pipeline and 192
km Vijaipur-Kota pipeline project.
Following the successful commissioning of HVJ pipeline, the

Government of India transferred to GAIL approximately 725
km of regional pipelines that were constructed and operated
by ONGC. GAIL also operates 320 km of pipeline network
laid by various customers. GAIL laid an additional 600 km of
pipeline in different regions of India. Other than GAIL, GSPC
operates a network of 500 km, Assam Gas Company owns a
pipeline network of 300 km and Gujarat Gas Company
operates a network of 400 km. In addition, there are city gas
grid pipelines laid by Indraprastha Gas Ltd. and Mahanagar
Gas Ltd.
Gujarat State Petronet Ltd. (GSPL), set up by GSPCL is

undertaking the implementation of 2200 km Gujarat gas grid.
Reliance Industries Ltd.s subsidiary, Gas Transportation
and Infrastructure Company Ltd. is also undertaking work
on ROU acquisition of Kakinada-Hyderabad-Goa pipeline
and Hyderabad-Uran-Ahmedabad pipeline projects.
Pricing
Before 1987, the prices of natural gas produced by the oil
sector PSUs namely, ONGC and OIL were fixed on a
negotiated basis. From 1987 onwards, the government
started fixing the prices of gas produced by oil sector PSUs
and introduced the cost plus pricing mechanism. The gas
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prices were last revised in the year 1997 linking them to a Notes
basket of international fuel oils. In 1998-99, the price linkage __________________
was 65% of the international price of the basket of __________________
internationally traded fuel oils. In 1999-2000, the price __________________
linkage was increased to 75%. Since then the linkage has __________________
remained at 75% only, though, it was envisaged that 100%
__________________
parity with fuel oil prices would be achieved in 2000-01 and
__________________
2001-02. The gas produced under NELP blocks is sold at the
__________________
market-determined rates. The companies dealing with LNG
in India are allowed up to 100% FDI and also to sell R-LNG __________________
at the market prices. __________________

__________________
Regulatory Framework
The petroleum regulatory board bill was reframed as
Petroleum and Natural Gas Regulatory Board Bill. In 2003-
04, the bill was amended to address the changes taken place
in the industry since its initial draft in 2001. It was proposed
that the Board should have powers of laying down the
technical standards to be observed by entities, especially in
matters relating to common carriers. Further, it was also
desired that an Appellate Authority on lines of the Electricity
Act, 2003 and TRAI Act, 1997 may be considered to sort out
the contentious legal and technical issues among various
entities expeditiously. The oil ministry also proposed
amendments in the previous draft of gas pipeline policy
released in September 2003. The amendments propounded
that the gas pipeline sector will be opened for competition
and the player offering the most competitive terms will be
awarded the contract.
Outlook
The Indian gas market is poised for growth; however, the
pace of growth would be contingent upon various factors.
The availability of natural gas has to be increased through
intensification of exploration and production under the New
Exploration Licensing Policy (NELP) and Coal Bed Methane
policy, development of new projects to import LNG as well
as pipeline gas. The critical issues faced by the various gas
consuming sectors like the power and the fertilizer sectors
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Notes need to be addressed. A careful balancing is required between

__________________ the economic cost of natural gas and the paying capacity of
__________________ the consuming industries to make natural gas an
__________________ advantageous fuel for its consumers as well as suppliers.
__________________ Transmission infrastructure is one of the critical inputs
towards development and adoption of natural gas as a viable
__________________
energy alternative. The government has to ensure that the
__________________
gas pipeline policy is one that makes the benefits of the
__________________
natural gas available to all the regions of the country most
__________________ proficiently, competitively and economically without any
__________________ duplication of the infrastructure and wastage of countrys
__________________ economic resources. Being at a nascent stage, the natural
gas sector requires a robust fiscal and regulatory framework
for its evolution and growth.
New Sources of Gas

Natural Gas Hydrates
i. Exploration and exploitation of natural gas hydrates in
deep sea conditions is a promising area for meeting long
term demand of natural gas in India. Natural gas
hydrates are formed by methane molecules trapped
within rigid lattice of cages formed by water molecules.
For the natural gas hydrates formation, deep sea
environment, favourable temperature and pressure
conditions, and very large quantities of natural gas
provide the necessary conditions. The hydrates
formation can start close to the sea floor and may
continue up to a depth of 300-400 metres. One cubic
meter of gas hydrates represents 164 cubic meters of
gas and 0.8 cubic meter of water at Standard
Temperature Pressure (i.e. 15C & 1 atm).
ii. A National Gas Hydrate Program (NGHP) has been

launched under the Ministry of Petroleum & Natural
Gas involving organizations like ONGC, DGH, GAIL,
OIL, etc. Several prospective areas have been identified
and preliminary resources have been estimated by DGH
to be around 1890 trillion cubic meters which is around
3000 times the current known gas reserves. Seismic data
pertaining to international agencies such as Laymont,
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Scripps, US Navy, etc. has been procured from National Notes
Geophysical Data Centre (NGDC), USA. The __________________
interpretation of these data has brought out several __________________
prospective BSRs (Bottom Simulating Reflector - __________________
indicator of gas hydrates) in Western Offshore, Eastern __________________
Offshore and in Andaman area.
__________________
iii. Although the production of natural gas from gas hydrates __________________
exist in permafrost (inland) area, till date no production __________________
of natural gas from oceanic gas hydrate has been __________________
reported. Several techniques such as heat injection / __________________
continuous steam injection, injection of hydrate
__________________
inhibitor, etc. have been proposed which are required
to be experimented before commercial use. The
commercial exploitation of gas hydrates would also
require extension of deep water technologies already
developed. Sea floor stability and its environmental
impacts during production are required to be studied.
The exploitation of gas hydrates therefore, requires
substantial research work to enable commercial gas
production. It is proposed that this resource should be
evaluated further during the Tenth Plan and drilling
activities should be undertaken in areas indicating
strong presence of hydrates. The presence of hydrate
deposits would be further enhanced through acquisition
of seismic data in number of deep water blocks awarded
under NELP-I and NELP-II bidding rounds. The
assessment of gas resources in offshore hydrates and
its further evaluation as potential commercial resource
should be included in National Technology Mission and
a time bound programme should be adopted. OIDB has
been providing financial support for the hydrate
programmes and this should continue.
Coal Bed Methane

i. In the coalification process for formation of coal from
vegetable matter, very large volumes of methane are
also formed. A part of methane gas is retained by coal
surface and this gas (Coal Bed Methane, CBM) can be
commercially extracted. The technology required to
exploit coal bed methane (CBM) is similar to that of
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Notes upstream oil and gas production, although the

__________________ development techniques and the sub-surface expertise
__________________ required are quite different. Development of successful
__________________ CBM project requires identification of Fairway or a
__________________ Sweet Spot which refers to the areas which are
fractured extensively and which can provide the inset
__________________
permeability required for commercial flow of methane
__________________
gas from the coal reservoirs. The coal seams may also
__________________
require hydraulic fracturing for yielding commercial gas
__________________ production rates.
__________________
ii. Coal Bed Methane (CBM) is considered to be the most
__________________
hazardous item in Coal Mining operation. Since its
release causes high degree gassy mines, it poses serious
problems by jeopardizing the safety and ventilation
system of coal mines thereby endangering human lives.
The release of such gas also creates environmental
hazards as methane is a green house gas.
iii. India has 200 billion tons of coal resources. The methane
potential from these could be more than 1000 BCM.
Broadly the gas producibility from these CBM resources
is estimated to be around 40 MMSCMD for 15-20 years.
The CBM resources in India can significantly augment
domestic gas production. Potential areas for CBM
include West Bengal, Bihar, Andhra Pradesh, Madhya
Pradesh, Jharkhand, etc. ONGC and GEECL are already
working on exploitation of CBM resources in Jharia and
Raniganj coal fields. The first CBM bidding round,
offering 7 blocks in West Bengal, Jharkhand, M.P. and
Rajasthan has been announced. The commercial
production i.e. CBM could thus become a reality during
Tenth Plan, Coal India Limited, Geological Survey of
India and agencies like CMPDIL, CMCL, etc. have large
data base on Coal Bed Methane resources. In addition,
laboratory facilities do exist with CMPDIL and CMRL,
etc. for R&D in CBM sector. ONGC too has laboratory
set up for CBM related studies. It is certain that with
commencement of exploitation of CBM in India, the
research and technology development programme would
get an impetus.
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Gas to Liquid Technology (GTL) Notes
__________________
i. Gas to Liquid (GTL) technology is another means to meet
__________________
the energy needs with clean fuel. The process involves
__________________
conversion of natural gas to liquid fuels. The process is
a multi-product process where with improved catalysts __________________
and reaction conditions the selectivity of a fraction can __________________

be improved but the rest cannot be totally eliminated. __________________
The technology can provide a breakthrough for __________________
economical magnetization of stranded natural gas __________________
reserves and development of small and remote gas fields
__________________
by production of readily transportable liquid products.
__________________
GTL products will also provide significant
environmental benefits as compared to other
conventional liquid fuels.
ii. There are various challenges in the area of GTL

technology. There is a need to work on catalysts for
achieving high selectivity with tolerance to the
impurities in syn gas and for ease of operation. R&D
work is also required in the reactor area for improving
the product yield. The techno-economics of the process
needs to be improved.
iii. Also, there is a scope for developing catalysts and

reactor systems for olefins and alcohol synthesis by GTL
technology.
iv. The GTL technologies developed by Sasol, Shell,

Phillips, Exxon-Mobil, B.P., Syntroleum, etc. are already
in commercial use/being put in commercial use. Sasol
has been producing fuels Feedstock, through conversion
of syn-gas produced from coal. A commercial plant based
on Shells middle distillates technology is already
operating in Malaysia. Number of serious initiatives are
progressing in Qatar and Iran for developing commercial
scale GTL projects.
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UNIT 3 Domestic Gas Scenario 37
Unit 3 Notes
__________________
__________________
Domestic Gas Scenario __________________
__________________
__________________
__________________
Objectives __________________
y Industry-wise Natural Gas Economic. __________________
y Availability of Gas for Power Generation. __________________
y Concept of Domestic Scenario.
Natural Gas Reserves

In India, reserves are classified as (a) prognosticated
reserves, which comprise all the resources expected to be
contained, (b) geological or in-place reserves, which
encompass all discovered but not recoverable resources,
(c) ultimate recoverable reserves, and (d) balance recoverable
reserves. The total in-place reserves of natural gas in India
as at the end of 2003-04 were 2328.51 billion cubic metres
(BCM) as compared to 2172.53 BCM at the end of 2002-03.
The ultimate recoverable reserves and balance recoverable
reserves were 1380.08 BCM and 919.21 BCM respectively as
on April 1, 2004 (see Tables 3.1 and 3.2). At the current
production level, India's reserves are likely to last for around
28 years.
Table 3.1: In-Place, Ultimate and Balance Recoverable Gas
Reserves as on April 1, 2004
(BCM)
Company Initial In Place Ultimate Reserves Balance Recoverable Reserves

ONGC 1569.13 886.27 512.22
OIL 238.32 160.15 106.27
Pvt/JV 521.06 333.66 300.72
Total 2328.51 1380.08 919.21
Source: MoP&NG
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Notes Table 3.2: Initial In-Place and Ultimate Reserves as on

__________________ April 1, 2003
__________________ (BCM)
__________________ Company Initial In-Place Ultimate Reserves
__________________ ONGC 1,512.77 860.49
__________________ OIL 233.84 155.70
__________________ PVT/JVs 425.92 264.27
__________________ Total 2,172.53 1,280.46
__________________ Source: DGH
__________________
Balance Recoverable Gas Reserves from 1990 to 2003
__________________
(BCM)
Area 2003 2002 2001 2000 1999 1998 1997 1996 1995 1990
Onshore 327 315 301 299 279 277 274 263 253 229
Offshore 527 436 462 461 369 398 418 377 407 457
Total 854 751 763 760 648 675 692 640 660 686
Source: MoP&NG
Indigenous Production
India's natural gas production reached a level of 31.96 BCM
in 2003-04, of which 80% was from the National Oil
Companies (ONGC and OIL) and the remaining 20% was
from private players including Joint Ventures (Figure 3.1).
The natural gas production by private players from the
discovered fields has increased over the past five years. This
has been on account of additional development in the fields
awarded to these players in the initial rounds of development
in the early 1990s (Table 3.3). At the current level of
production, domestic natural gas reserves are expected to
last for about 28 years.
Figure 3.1 : Indias natural gas production in 2003-04

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Table 3.3 : Area-wise details of natural gas production Notes
__________________
(MMSCM)
__________________
Area Natural Gas Production __________________
2003-04 2002-03 __________________
A. Onshore 8966 8723 __________________
B. Offshore 22987 22668 __________________
Western 22064 21837 __________________
Eastern 923 831 __________________

__________________
Total (A & B) 31953 31391
__________________
Natural Gas Discoveries Made by Private

Sector Companies
Reliance Industries Ltd. (RIL) has made 13 gas discoveries.
Out of the 13 discoveries, 9 discoveries have been made in
Krishna-Godavari (KG) basin in deep water block KG-DWN-
98/3 while 4 discoveries have been made in Mahanadi NEC
basin in shallow water block NEC-OSN-97/2. Cairn Energy
India Pvt. Ltd. has made 8 discoveries. While 5 discoveries
have been made in Cauvery Basin in CB-OS/2 block, 3
discoveries were made in KG basin in KG-DWN-98/2. Niko
Resources Ltd. has made two onland discoveries of gas in
Bheema-1 and NS blocks (see Tables 3.4., 3.5 and 3.6).
Table 3.4: Discoveries made by RIL
Name Type of Name of Date of In-place Status

Block Discovery discovery Reserves
(BCM)
KG-DWN- NELP-I Dhirubhai - 1 October 2002 323 Development
98/3 Dhirubhai- plan of
Dhirubhai - 2 October 2002 1,2, 3 Dhirubhai 1
declared as and 3 is under
Dhirubhai - 3 October 2002
commercial examination
by MC
Dhirubhai - 4 January 2003 21.2 Working on
commerciality
Dhirubhai - 5 July 2003 8.5 in place
estimate made
Dhirubhai - 6 July 2003 41.2 by RIL
Dhirubhai - 7 May 2004 17.7
Contd...
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Notes Dhirubhai - 8 May 2004 10.5

__________________ Dhirubhai -16 August 2004 Under
__________________ evaluation
__________________ NEC-OSN- NELP-I Dhirubhai -9 June 20 04 11.3 To be

97/2 appraised
__________________ Dhirubhai - 10 June 20 04 9.1 further
__________________ Dhirubhai - 11 June 20 04 6.8
__________________
Dhirubhai - 15 August 2004 Under
__________________ evaluation
__________________
Table 3.5: Discoveries made by Cairn Energy India Pvt. Ltd.
__________________
__________________
Name Type Name of Oil / Date of Inplace Status
of Discovery Gas discovery Reserves
Block (BCM/MMT)
CB- Pre- Lakshmi Gas/Oil May 2000/ 7.31 Producing
OS/2 NELP April 2002 since
November
2003.
Ambe Oil/Gas November Under
2000 estimation.
Gauri Oil/Gas December 3.23 Production
2000 commenced
in April 2004
CBX Gas February Under
Structure 2004 Estimation
KG- NELP- Annapurna Gas June 2001 18.41 Working on
DWN- 1 commerciality
Kanak Oil/Gas August 23.27
98/2
Durga 2001
Padmavati Oil/Gas October 18.46
2001
Table 3.6: Discoveries made by Niko Resources Ltd.
Name Block Type of Name of Date of In-place Status

Block Discovery discovery Reserves
(BCM)
CB-ONN-100/2 NELP-II Bheema- 1 November 2002 0.06 As per

D&M report
NS January 2003 0.71 Under

production
since May
2004
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Demand - Supply Notes
__________________
India's consumption of natural gas has risen faster than any
__________________
other fuel in recent years. Increased use of natural gas in
__________________
power generation is to account for most of the increase, as
__________________
the Indian Government is encouraging the construction of
gas-fired electric power plants in coastal areas where they __________________
can be easily supplied with liquefied natural gas (LNG) by __________________

sea. Given that domestic gas supply is not likely to keep pace __________________
with demand, India will have to import most of its gas __________________
requirements, either via pipeline or LNG tanker. __________________
Figure 3.2 : Demand Projections __________________
(MMSCMD)
Fiscal Year Demand
2024-2025 391
2011-2012 313
2006-2007 231
2001-2002 151
1999-2000 110
Source: Report of the Sub-Group on development and utilization of natural gas

(1999)
As against the requirement of 110 MMSCMD in 1999-2000,

the domestic gas supply was 65 MMSCMD. In future, the
demand-supply gap would continue to exist, which will have
to be met from imports, increase in domestic production and
by switching to liquid fuels.
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Notes Demand originating in other sectors (industry, commercial,

__________________ domestic) is likely to be incremental to that of Power and
__________________ Fertilizer sector. It is predicted that these other sectors
__________________ would account for nearly 20% of the total demand in 2002,
__________________ and thereafter, as given in Table 3.7 below.
__________________ Table 3.7 : Demand Projections for Gas in Power Sector
__________________
Scenario 2025 2012 2007 2002
__________________
Scenario I (Import value at $4/MMBtu)
__________________
Gas-based capacity (MW) 42,309 23,298 17,190 10,307
__________________
Gas demand (MMscmd) 153 90 67 40
__________________
Scenario2 (Import value at $3/MMBtu)
Gas-based capacity (MW) 57,420 43,449 30,761 17,192
Gas demand (MMscmd) 208 168 119 67
Note:
1. Estimates for 2002-2012 are based on the Report on Natural Gas Development
Masterplan.
2. Estimates for 2025 are based on NTPC's projections with a modified
assumption of 80% PLF rather than 70%.
(1999).
Demand Projections for Gas in Fertilizer Sector

Demand for gas for fertilizer production is based on per capita
requirement of food grains, fertilizers required to attain the
necessary production, the share of urea to sustain this yield
(excluding imports of 2 MMt through the forecasting period),
and consequently gas required to produce this urea. If one
were to assume that 80% of the capacity in 2006-07 and
beyond would be gas based and the remaining naphtha based,
the potential demand for gas in this sector would be as follows
(Table 3.8):
Table 3.8 : Demand Projections for Gas in Fertilizer Sector
(MMSCMD)
2025 2012 2007 2002 1999

105 83 64 54 36

(1999)
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Total Gas Demand Projections Notes
__________________
Table 3.9 : Total Gas Demand Projections
__________________
(MMSCMD) __________________
2024-25 2011-12 2006-07 2001-02 1998-99* __________________

__________________
Powera
__________________
Scenario 1 153 90 67 40 22
__________________
Scenario 2 208 168 119 67 22 __________________
Fertilizers b 105 83 66 54 24 __________________

__________________
Others c
Scenario 1 64 43 33 23 19
Scenario 2 78 63 46 30 9
Total
Scenario 1 322 216 166 117 55
Scenario 2 391 313 231 151 55
Expert Group (1993) NA 324** 241** 158** 143
*: Actual sales
a: Modified TERI's projections from the Gas Master plan.
b: Based on submissions made by FAI to the Sub-group and other official projections.
c: Estimates based on a pro-rata assumption.
**: The Expert Group's estimates are for 1999-00, 2004-05, 2009-10 and 2019-20.
The above data is based on interpolations of the aforementioned estimates.

(1999).
GDP indexed demand growth (GIDG)

As per a TERI/FACTS Study conducted in 2001, long-term
projections of gas demand in this scenario have been derived
from the likely gas use in different sectors like power
generation, fertilizer production, transport and domestic use.
These forecasts are based on outlooks for growth in different
sectors of the economy. Sectorial economic growth has been
adjudged in terms of the growth in value added by a sector.
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Notes Table 3.10 : Gas based generating capacity and associated

__________________ gas demand for power generation.
__________________
(In MW)
__________________
Year Gas based generating Gas requirements for power generation
__________________ (MMSCMD)
capacity
__________________
__________________ 1999 9091 25.0
__________________ 2005 20001 55.9

__________________ 2010 24800 69.3
__________________
2015 28202 78.8
__________________
* Short-term estimates (supply driven)
Table 3.11 : Gas demand for urea production
(MMSCMD)
Year Gas
Demand
1999 24.4
2005 33.2
2010 40.2
2015 46.3
Table 3.12 : Gas demand from the transport Sector
(MMSCMD)
Year Gas Demand

1999 0.1
2005 0.5
2010 0.7
2015 1.0

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Table 3.13 : Gas demand from the domestic sector Notes
(MMSCMD) __________________
Year Gas Demand __________________
1998 0.7 __________________
2005 1.3 __________________
2010 1.7 __________________
2015 2.7 __________________
* Short-term estimates (supply driven) __________________
__________________
Table 3.14 : Aggregate Gas demand projections
(MMSCMD) __________________
Year Power Fertilizer Industry Transport Domestic Total* __________________
1999 25.0 24.4 9.1 0.1 0.7 59.4
2005* 55.9 33.2 11.9 0.5 1.3 102.7
2010 69.3 40.3 15.6 0.7 1.7 127.6
2015 78.8 46.3 21.9 1.0 2.7 150.8
CARG 7.4% 4.1% 5.7% 15.4% 8.9% 6.0%
*Short-term estimates (supply driven)
Supply Projections
Given the significant decline in reserves over the last few
years, it is clear that unless reserves in existing fields are
significantly upgraded or new fields are discovered and
brought on stream, gas production is set to decline from its
current level. Only 33% of the total 3.14-million sq.km
sedimentary area of the country has been explored upto
moderate level.
A three-pronged strategy for exploration as laid down by

Government prescribes,
(i) Intensive exploration in category-1 basins for conversion

of resources to proven, in-place reserves, which is
estimated to add further 4 billion tonnes of oil and oil
equivalent gas in-place reserve.
(ii) Selective but focused exploration in Category II and

other frontier on-land and shallow water basins.
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Notes (iii) Exploration and production from deep water areas

__________________ (resources of deep water areas are expected to be 11
__________________ billion tonnes, and is expected to provide 2-3 billion
__________________ tonnes of oil and oil equivalent gas in the next 25 years)
__________________ Current projections show that the total gas production would
__________________ reach 80 MMSCMD by 2001. Thereafter, the production would
__________________ decline steadily until the Bombay High gas cap is brought
__________________ into production. This is expected between 2015 and 2020.
__________________
Table 3.15 : Current projections of gas production
__________________
(MMSCMD)
__________________
Scenario 2002 2007 2012 2020
As given** 70 58 45 36
Optimistic** 70 64* 78* 84*
Pessimistic** 70 54 33 28
* Includes production from new fields and CBM
** Base case (As given): GDP projected to grow at 6.5% p.a. till 2025
High growth case (Optimistic): GDP projected to grow at

7.7% p.a. for the X Plan period and 8.1% p.a. for the XI Plan
period as per the Planning Commission estimates. For the
subsequent period till 2025, the GDP growth rate projected
at 8.1% p.a.
Pessimistic case: GDP projected to grow at 5.0% p.a. till 2025.
Projected Demand-Supply Balance

The demand-supply balance based on the above demand and
supply projections is given below in Table 3.16.
Table 3.16 : Demand-supply balance
(MMSCMD)
2002 2007 2012 2025*

Demand Scenario 1 (A) 117 166 216 322
Supply As given Scenario (B) 70 58 45 36
Supply Optimistic Scenario (C) 70 64 78 84
Gap (A~B) 47 108 171 286
Gap (A~C) 47 102 138 238
Contd...
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Demand Scenario 2 (A*) 151 231 313 391 Notes
Supply As given Scenario (B*) 70 58 45 36 __________________
Supply Optimistic Scenario (C*) 70 64 78 84 __________________
Gap (A*~B*) 81 173 268 355 __________________
Gap (A*~C*) 81 167 235 307 __________________

__________________
*In the absence of supply projections for 2025, it is assumed that gas supply in 2025
__________________
is the same as those for 2020
__________________
Table 3.17 : State-wise Details of Natural Gas Production __________________
__________________
(MCM)
__________________
Area/State Natural Gas Production
January December April-January
*2003 2002 **2002 *2002-03 2001-02
A. ONSHORE 755 674 736 7224 6558
Gujarat 298 289 290 2942 2643
Assam/Arunachal
177 156 178 1723 1689
Pradesh
Tamilnadu 52 29 43 357 294
Andhra Pradesh 172 164 173 1713 1480
Tripura 41 36 37 358 352
Rajasthan 15 Neg. 15 131 100
B. OFFSHORE 1989 1907 1991 18851 18322
Western 1914 1837 1915 18156 17888
Mumbai High 1569 1591 1571 15352 15490
Private/JVC 256 246 259 2555 2398
Gujarat# 89 0 85 249 0
Eastern 75 70 76 695 434
Private/JVC 75 70 76 695 434
Total (A&B) 2744 2581 2727 26075 24880
*Provisional
**:Revised
#: Private / JVC commenced production from Gujarat Offshore in Nov.2002.
Table 3.18 : Natural Gas Production
(MCM)
January 2003* 2744 April 2002-January 2003* 26075
January 2002 2581 April 2002-January 2003 24880
%age variation 6.3(+) %age variation 4.8 (+)
Mcm: Million Cubic Metres

*: Provisional
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Notes The Natural Gas Production at 2744 MCM during January

__________________ 2003 is 6.3% higher than the production of 2581 MCM in
__________________ January 2002 and cumulatively it is 4.8% higher than the
__________________ production of 24880 MCM attained during the corresponding
__________________ period of the previous year.
__________________ Table 3.19: Demand and Supply of Natural Gas for 2005-06
__________________
(MMSCMD)
__________________
__________________ Region Demand Current Supply
__________________
Northern 46 27
__________________
Western 60 47
Southern 30 9
Eastern 12 4
Total 148 87
Total in a month (MMSCM) 4440 2610
Note: The above data includes demand and supply of R-LNG.

Source: Note on Supplementary for Lok Sabha questions presented for reply on
April 21, 2005, regarding requirement of petroleum products.
Analysis of Natural Gas Demand & Avail-

ability from Various Sources
Currently most of India's gas is produced from the western
offshore fields which include South Basin fields, Joint
Venture fields of Tapti & Panna-Mukta and production of
Associated Natural Gas from Mumbai High. The gas supplies
from South Basin fields and JV fields are fed into HBJ system
for gas supply to Northern and North-western part of India
including Gujarat.
The other onshore gas producing regions within the country

are as follows:
Cambay Basin, Gujarat.
Cauvery Basin.
Krishna-Godavari Basin.
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North-Eastern region including Assam & Tripura. Notes
__________________
Rajasthan.
__________________
Natural gas availability __________________

__________________
After deducting internal use of natural gas by gas producers,
__________________
the average supply of natural gas from various sources to
__________________
customers is as follows (Table 3.20):
__________________
Table 3.20 : Average Supply of Natural gas __________________
Producer (MMscmd) __________________

__________________
ONGC 51
OIL 4
PMT JV consortium 10
Cairn Consortium 3.5
Other Private 3.5
Total 72
Around 18 MMSCMD of RLNG is being supplied over and

above 72 MMSCMD, making the total availability of gas in
the country to the extent of around 90 MMSCMD.
Further, DGH have projected natural gas availability in

medium to long term. As per the projections made the current
domestic availability of natural gas is likely to increase to
around 152 MMSCMD in 2007-08 due to upcoming of various
new sources such as RIL, Kochi LNG, etc. However, this
availability is likely to decrease to around 130 MMSCMD in
2010-11 due to decline in gas availability from current largest
domestic gas source i.e ONGC. It may be seen that the
domestic gas availability from ONGC shall be decreasing
from 53 MMSCMD in 2006-07 to around 30 MMSCMD by 2010-
11. In order to bridge the growing deficit between gas
demand and availability, GAIL is trying to import natural
gas either in the form of LNG or through transnational
pipelines. The likely availability of natural gas from these
sources is as follows (Table 3.21).
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Notes Table 3.21 : Likely availability of Natural gas from different

__________________ sources
__________________ Source Quantity Likely start Year
__________________
__________________
Iran, LNG 18 4th Qtr. 2009
__________________ Iran P/L 60 120 2010
__________________
Myanmar 28 -
__________________
__________________ ADGAS/Petronas/Qatar/Australia 8 18 -
__________________
Total 114 184
__________________
Since the gas availability from international sources is long

term in nature, therefore, it is envisaged that the total gas
availability in the country by 2010-11 could be in the range
of 244-314 MMSCMD.
Table 3.22 : Summary of Gas Availability (MMSCMD)
Source Immediate Medium Term Long Term

(2007-09) (2010-2011)
ONGC 51 50 30
OIL ( Raj.+NE) 4 5 5
Sub Total 55 55 35
JV producers 17 53 59
LNG sources 18 30 36
Iran LNG -- -- 18
Transnational pipelines* : -- -- 148
Iran and Myanmar
Other LNG sources*: Adgas, -- -- 18
Petronas, Qatar. Australia
Total 90 138 314
Source: DGH/OIL/LTGP 2K
* Expected
Gas Demand
The power and fertilizer sectors have been core consumers
of natural gas. These two sectors together consume about
70% of the gas today. The balance goes to industrial units
where it replaces mostly liquid fuels. Gas is also supplied to
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the residential and the commercial sectors in Mumbai, Delhi Notes
and a few towns of Gujarat, Assam and Tripura. Over the __________________
past many years a number of gas demand projections have __________________
been made by various agencies. __________________
__________________
Projections
__________________
A number of attempts have been made so far to estimate the __________________
future demand for gas. Although the figures do change every __________________
time the exercise is taken up, a trend of increasing demand
__________________
far exceeding the supplies available from indigenous sources
__________________
seems to have been well established in a meeting taken by
__________________
Secretary (P&NG) on 29.04.2005 regarding projected demand
of natural gas in medium to long term. The meeting was
attended by officials from Ministries of respective consumer
industries viz. Power, Fertilizer, Steel, etc. and experts from
other companies/agencies involved in gas business. The
demand of natural gas as assessed is provided below
(Table 3.23):
Table 3.23 : Immediate/Medium term requirement

(say 2007-08)
(MMSCMD)
Sector Shortfall Conversion Additional Total
Fertilizer 11.19 12.99 - 24.18
Power 18 - 21.42 39.42
Steel 3 - 3
Industrial* 12.69 12.69
City gas* 6.81 6.81
Total 32.19 12.99 40.92 86.1
Note: It is assumed that the immediate/medium term requirement for Industrial

and City gas sector shall be 50% of the total projected demand of gas, as assessed by
MoP&NG, for the industrial & city gas distribution projects i.e 25.37 & 13.61
MMSCMD respectively in 2009-10.
The above gas demand was considered in addition to the

existing gas supply of around 99 MMSCMD to various sectors
in the country. Therefore, it was estimated that the total gas
demand in the country in the immediate/medium term
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Notes requirement could be 185.1 MMSCMD, i.e. around 185

__________________ MMSCMD. However, it was also considered that the demand
__________________ could be lower if the delivered price of natural gas is
__________________ increased from $ 3.0 MMBTU to $5.0 MMBTU.
__________________ Table 3.24 : Long term requirement (say 2010-11)
__________________
Sector Shortfall Conversion Additional Total
__________________
Fertilizer 11.19 22.41 - 33.6
__________________
Power 18 6 124.42 148.42
__________________
Steel 3 4 7
__________________
Industrial 25.37 25.37
__________________
City gas 13.61 13.61
Total 32.19 28.41 167.4 228
Thus, the total gas demand in the country in the long term
could be 327 MMSCMD (i.e. current supply of 99 MMSCM
plus new demand of 228 MMSCMD).
Table 3.25 : Estimated Demand at US$ 4.0/MMBTU
Sector 2005-06 2008-09 2011-12

Power 85.68 159.55 182.11
Fertilizer 43.76 57.18 61.98
Industrial 45.17 52.87 61.8
Domestic + Commercial +
5.66 7.43 9.92
Automobile
Total 180.26 277.03 315.81
However, the demand of natural gas goes down significantly

if the price of natural gas/RLNG is increased by $1/MMBTU.
The demand of natural gas , as assessed by independent
agency (MDRA) @ price of $5.0/MMBTU is as follows:
Table 3.26 : Estimated Demand at US$ 5.0/MMBTU
Sector 2005-06 2008-09 2011-12

Power 0 0 0
Fertilizer 0 0 0
Industrial 45.17 52.87 61.8
Domestic + Commercial + Automobile 5.66 7.43 9.92
Total 50.83 60.3 71.72
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Total domestic production of natural gas is to the extent of Notes
around 72 MMSCMD. Further, RLNG to extent of around __________________
18 MMSCMD is available from PLL-Dahej and Shell-Hazira. __________________
__________________
Further, current domestic availability of natural gas from
largest domestic source i.e ONGC is projected to decrease __________________
from 53 MMSCMD to around 30 MMSCMD by 2010-11. This __________________

shall be offset from increase in domestic availability from __________________
private gas sources such as RIL and other NELP fields. __________________
__________________
Import of natural gas in the form of LNG and through
transnational pipelines would be major sources of gas __________________
availability. Taking all the above into account, the total gas __________________
availability in the country shall increase to around 244 - 314
MMSCMD by 2010-11.
As against the total gas availability of around 244 - 314

MMSCMD by 2010-11, the total projected demand of natural
gas will be 327 MMSCMD by 2010-11. However, In the
medium term i.e. 2007-08 it is estimated that as against the
total demand of around 185 MMSCMD, the gas availability
in the country shall be only around 152 MMSCMD.
Issues Relating to Supply of Natural Gas &

LNG to Power Sector
Like fertilizer sector natural gas is the main fuel for power
sector and constitutes more than 60% of the cost of
generation of power. Natural gas, being a clean & efficient
source of energy is also the preferred fuel for gas based power
stations. The viability of the power projects is dependent
upon the availability of the natural gas at competitive prices.
Owing to the shortage of gas supplies, power projects are
required to use naphtha as fuel under compulsion. The typical
fuel cost of generation on natural gas and naphtha at the
current price level works out to Rs. 0.90/Kwh and Rs. 4.04/
Kwh respectively.
As brought out, power sector is one the major consumers of

natural gas. The natural gas consumption in the power sector
during the year 2002-03 was 28.79 MMSCMD. As against,
the full load requirement of 19.29 MMSCMD, NTPC power
stations have been accorded long term linkages of only 12.99
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Notes MMSCMD. The actual supplies are of the order of 9.97

__________________ MMSCMD resulting in a shortfall of 9.32 MMSCMD (i.e.
__________________ 48%). Like fertilizer sector, the power sector is also starved
__________________ of adequate quantity of natural gas. Owing to the shortages
__________________ of natural gas, power stations are compelled to use alternate
fuels like naphtha/HSD, the price of which are not only very
__________________
high but also highly volatile. As brought out above, the fuel
__________________
cost of generation at current prices of naphtha is Rs. 4.04
__________________
per Kwh. At such high price of naphtha, NTPC power plants
__________________ are not getting the schedule resulting in idling of capacities,
__________________ a condition a power starved nation like us can ill-afford.
__________________
NTPC had to earlier defer its plan for expansion of gas based
capacities owing to the high indicative price of LNG and high
prevailing price of naphtha at that point of time. NTPC has
now gone for an international competitive bidding for
sourcing LNG/NG at most competitive rates. In the recently
concluded first phase of bidding for sourcing of LNG/NG for
expansion of Kawas & Gandhar GPP, NTPC has obtained a
price level of US$ 2.97 per MMBtu of gas delivered at power
plant on gross calorific value basis. The cost of generation is
a direct function of the cost of fuel and in order that the power
station remain competitive in the merit order system of
dispatch the availability of fuel at a competitive & stable price
is very essential. Presently, the gas prices are linked to the
basket of fuel oils, with a ceiling limit on the price of gas.
The gas producing companies however are seeking a
complete deregulation of gas prices (i.e. removal of ceiling
limit) and they aim to price the gas on 100% parity to the
basket of fuel oils. In view of the high volatility of crude price,
which inter-alia results in the high volatility of basket of fuel
oils, the present mechanism of pricing of natural gas based
on the basket of fuel oils needs a relook. Power sector
requires a stable price of fuel de-linked to crude oil. Perusal
of the annexure reveals that at current crude prices of around
US$ 40/bbl, the basket of fuel oils shall be at levels of US$
214/MT. This would translate into a consumer price of Rs
10169/MCM at 100% parity to the basket. The delivered price
considering royalty & sales tax shall then be Rs 15057/MCM.
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The fuel cost of generation at this level would be a whopping Notes
Rs 2.81/Kwhr. __________________
__________________
Power sector operates under availability based regime and
__________________
the dispatch of power is governed by the principles of merit
__________________
order. Thus, for power generated on LNG to be viable, it has
__________________
to compete against the available alternate fuel for power
__________________
generation i.e. coal. The cost of generation on raw coal at
pithead location works out to be approx. paisa 43 per Kwh. __________________
For a railfed location at a distance of around 1000 KM the __________________
cost of generation would be approx. Rs 1.0 per Kwh. The __________________
equivalent price of LNG to meet the above cost of generation __________________

for pithead and railfeld locations should be US $ 1.97 per
MMBtu & US$ 2.92 per MMBtu respectively.
In case of a power starved country like us, the availability of

power is one of the important factors for the economic growth
of the country. In case the fuel is not made available at a
competitive prices as brought out above, capacity addition
in power sector based on LNG may not be possible. Should
the power stations have to operate on a higher fuel cost like
fertilizer sector, the power sector may also need to be
subsidized which may not be a welcome choice.
From the power projects perspective, the gas supply

agreement duration has to be for a minimum period of 15
years i.e. the initial life of a gas based power plant.
Availability of Gas for Power Generation

Discussion with GAIL and Status of Dahej terminal
GAIL during their presentation to CEA intimated that they
are taking many initiatives to meet for the shortfall in gas
supply by ONGC as well as for making available additional
gas through imports. The first LNG terminal with capacity
of 5 MMTPA with possibility to expand upto 7.5 MMTPA is
already under implementation by Petronet- LNG limited
(PLL), a joint venture company of GAIL with other public
sector oil companies at Dahej. The sale and purchase
agreement between PLL and Ras Gas, Qatar has been signed
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Notes for 5 MMTPA. The EPC contract for re-gasification terminal

__________________ at Dahej has already been awarded and its commissioning is
__________________ scheduled by Dec. 2003.
__________________
The new trunk pipeline from Dahej to Vijaypur, parallel to
__________________
HBJ pipeline is already under implementation to match with
__________________
the commissioning of Dahej terminal. This new pipeline is
__________________ proposed to be taken to Dadri, Faridabad and to Punjab &
__________________ Haryana consumers as shown in the diagram in Annexure-
__________________ II.
__________________
As per GAIL, the gas supply from the LNG terminal at Dahej
__________________
will be initially 10 MMSCMD with one train of 2.5 MMTPA
capacity, which will increase, to 20 MMSCMD when another
train of 2.5 MMTPA is added by 2004. About 4-5 MMSCMD
of gas from Dahej terminal would be used to make-up for the
shortfall in gas availability along HBJ pipeline in the X plan.
The rest of the available gas could be utilized for new starts.
In XI plan, additional gas availability of 10 MMSCMD could
be considered when the terminal capacity is increased to 7.5
MMTPA.
The extension proposals of NTPC gas based power plants at

Auraiya, Anta, Kawas & Gandhar had been accorded TEC
by CEA. These projects are presently not envisaged for
commissioning during the X plan. NTPC had earlier explored
the possibility of gas supply from Dahej terminal but this
could not materialize due to non-agreement on price of gas.
NTPC has invited competitive bids for supply of gas to
expansion project at Kawas (1300 MW) & Gandhar (1300
MW). Against this PLL along with others have submitted
their proposals to NTPC. NTPC is yet to shortlist the gas
supplier. These extension projects would need about 12
MMSCMD of gas.
Intimation by M/s SHELL and status of Hazira

Terminal
M/s Shell Hazira Gas Private Ltd. has intimated that the
construction of the 5 MMTPA LNG receiving & regasification
terminal at Hazira (Gujarat) by SHG affiliates is on schedule
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to receive the first LNG carrier in third quarter of 2004 and Notes
to commence commercial deliveries of gas to customers by __________________
fourth quarter, 2004. The 5 MMTPA corresponds to about 20 __________________
SCMD of re-gasified gas. M/s SHG has signed MOUs with all __________________
major customers in Gujarat and potential customers in __________________
Maharashtra, Rajasthan and Uttar Pradesh. They have also
__________________
submitted responses to NTPC's request for qualification for
__________________
supply of LNG and they will participate in this bid process.
__________________
SHG is negotiating a Gas Transmission Agreement (GTA)
with Gujarat State Petronet Ltd./GAIL for transportation of __________________
LNG to customers in Gujarat State and is discussing with __________________

relevant stakeholders/GAIL to put in place gas transmission __________________
arrangements from Hazira to customers outside Gujarat.
SHG has expressed difficulty in intimating the exact quantity
of gas that they can make available for additional power
generation in view of ongoing negotiation with various
customers. They however intimated that, the facility under
construction at Hazira can be expanded well beyond 5
MMTPA and they will be able to meet any substantial
increase in gas demand created by additional power
generation capacity. They have requested CEA to furnish
details of the capacities of new power generation that they
envisaged and their locations to enable them to provide
further details on supply possibilities. Considering the fact,
that SHG intends to bid for NTPC projects and the possibility
of further expansion of their facility, we can assume
availability of 30 MMSCMD, out of which 20 MMSCMD could
be taken in the X Plan and 10 MMSCMD in the XI Plan.
Dabhol LNG Terminal

Dabhol Power Company (DPC) had proposed to set up a LNG
terminal at Dabhol for their 2184 MW Combined Cycle power
plant. The LNG terminal facility had been constructed about
85% but could not be completed due to dispute between DPC
and MSEB. The LNG terminal facilities have presently been
designed for 5 MTPA with provision to increase upto 10
MTPA. The requirement for the Dabhol power plant is about
2.1 MTPA and M/s DPC had proposed to sell the remaining
quantity of gas to other users.
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Notes Other Proposals

__________________
In addition to Dahej and Hazira LNG terminals, there are
__________________
proposals of Petronet LNG Ltd. to set up LNG terminals at
__________________
Cochin and Mangalore with initial capacity of 2.5 MTPA each.
__________________ According to GAIL, these proposals can materialize if there
__________________ is committed demand of gas in Kerala & Karnataka. The gas
__________________ availability of 10 MMSCMD each from these two terminals
__________________ could be considered in the XI Plan.
__________________
GAIL plans to link the proposed LNG terminals at Dahej,
__________________ Hazira, Cochin & Mangalore with the major cities by laying
__________________ a gas pipeline grid as shown in the drawing in Annexure-III.
GAIL intimated that there are proposals to import natural

gas from Bangladesh, Myanmar, Iran and Turkmenistan. As
per present indications, about 10 MMSCMD gas would be
available from Bangladesh. The total gas availability in
Myanmar is 50-60 MMSCMD for which the marketing is with
GAIL. About 10 MMSCMD can be expected to be available
for import by India. The gas from Bangladesh & Myanmar
can be used to set-up power plants in XI Plan in the Eastern
India i.e. Orissa, Bihar & West Bengal. The availability of
gas from Iran and Turkmenistan is expected to be about 20
MMSCMD based on which, power plants could be planned
in XI Plan in Punjab, Haryana, Himachal Pradesh &
Rajasthan.
New Finds of Gas Wells by M/s Reliance

Reliance Industries Ltd. (RIL) had submitted bids against
the New Exploration Licensing Policy (NELP)) of GOI to
enhance the domestic gas availability. RIL had been awarded
22 blocks all along the east & west coast. RIL have intimated
that they have discovered 7 tcf of natural gas in one of the
off-shore block of Andhra Pradesh in Krishna-Godavari Basin.
The block is named as KG-D/6. The recoverable gas reserves
are expected to be 5-6 tcf. As per tentative plan, RIL may
produce about 40-50 MMSCMD natural gas within a period
of 18 months from the date of Government approval. As per
RIL, they are expecting more gas availability in many of the
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other blocks under exploration by them on east as well as Notes
west coast. __________________
__________________
RIL further intimated that, under the NELP scheme, the gas
__________________
production profile as well as the price of gas will be approved
by DGHC/ Min. of Petroleum & Natural Gas and hence they __________________
are unable to intimate the price of gas & the exact quantity __________________
of gas likely to be available. As per the discussion held with __________________
them, out of 40-50 MMSCMD of gas available in KG-D6 block, __________________
About 7-8 MMSCMD gas is expected to be utilized to make- __________________
up for the shortfall in gas supply to existing and new __________________
consumers in Andhra Pradesh including power plants for
__________________
which gas allocations have already been made. RIL also plan
to make available significant quantity of gas for domestic
consumption (LPG) & transport sector. RIL intends to submit
bid to NTPC for supply of gas to their plants at Kawas,
Gandhar & Auraiya. Their future marketing strategy will
largely depend on the acceptance of their bid by NTPC. RIL
during discussions intimated that, they are prepared to make
available gas for power generation for which they requested
to intimate the potential sites/projects so that they can plan
the gas supply accordingly. They however were non-
committed on the total quantity of gas, which could be made
available for power generation.
For power generation it is reasonable to assume availability

of about 40 MMSCMD gas from RIL. As the production
programme of RIL is still not firmed-up, about 20 MMSCMD
could be considered in the X Plan and remaining gas for early
XI Plan period.
Industry-wise Natural Gas Economics

The ceiling price of natural gas is the price above which it is
not competitive to use natural gas in place of other fuels or
feedstocks, taking into consideration the conversion costs
and pay-back period. The ceiling price comprises the basic
price of natural gas, tax levied on natural gas and the
transportation cost of natural gas. To make natural gas a
profitable proposition for the end users, it has to be priced
below the ceiling price.
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Notes For most of the segments, the ceiling price of natural gas is
__________________ more than Rs. 5/ScM except for cement, integrated steel and
__________________ coal pit-head power segment. Therefore, in most of the
__________________ segments natural gas can competitively replace other fuels
__________________ or feedstocks.
__________________ 1. Power Plants: The natural gas economics viz--viz
__________________ different fuel based power plants is summarized as
__________________ follows (Table 3.27).
__________________
Table 3.27: Economics of different Fuel Based Power Plants
__________________
__________________ Economics of Power Plants Coal Naphtha Gas
Investment (Rs. Per MW) 44,000,000 38,000,000 38,000,000
Annual Plant Load Factor 75% 75% 75%
O&M Expenses 2.5% 2.5% 2.5%
Annual escalation in O&M expenses 6% 6% 6%
Total fixed cost per kwh Rs. 1.49 Rs. 1.58 Rs. 1.58
Levelised fixed cost per kwh Rs. 1.53 Rs. 1.32 Rs. 1.32
Fuel Cost
Station Heat rate (Kcal/Kwh) 2080 1730 1730
Calorific Value (Kcal/Kg) 3500 11200 9400 Kcal/ScM
Price
Delivered Price Rs. 2521/Ton Rs. 15,310/Ton Rs. 6000/TCM
Primary fuel cost per Kwh Rs. 0.63 Rs. 2.73 Rs. 1.28
Secondary fuel cost per Kwh Rs. 0.04
Total Variable Cost per Kwh Rs. 0.67 Rs. 2.73 Rs. 1.28
Total cost per Kwh Rs. 2.15 Rs. 4.31 Rs. 2.86
Levelised tariff per Kwh Rs. 2.20 Rs. 4.056 Rs. 2.6
Imputed economic value of gas (Rs. Rs. 4.11 Rs. 12.85
Per ScM)
Imputed economic value of gas (US$ Rs. 2.25 Rs. 7.04
Per MMBtu)
Sensitivity to coal price Rs. 0.95
For 1000 km distance from pithead to power plant, the imputed value of gas increases from
Rs. 4.11 to Rs. 6.73
Source: IMRB
The natural gas price of less than Rs. 4.11 per ScM would
be competitive for the power plants at coal pit-head to
switch over to natural gas and price of less than Rs. 12.85
per ScM would be beneficial for power plants based on
naphtha to switch over to natural gas.
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2. Fertilizer Plants: Fertilizer sector has been the Notes
greatest consumer of natural gas along with the power __________________
sector. Natural gas is a preferred feedstock for the __________________
manufacture of urea because it is environment-friendly __________________
and cheaper. Moreover, when natural gas is used in the __________________
manufacture of urea, in addition to the heat energy, the
__________________
chemical potential of the gas is also realized as compared
__________________
to other sectors where only the heat energy of the gas is
__________________
utilized.
__________________
The tables 3.28 and 3.29 given below show the imputed __________________
value of natural gas for Greenfield gas based fertilizer
__________________
plant and Brownfield naphtha based fertilizer plant.
Table 3.28: Imputed Value for Greenfield Gas Based

Fertilizer Plant
Fixed cost per tonne of Urea Rs. 2800

Other Variable Expenses Rs. 200
Total Cost per tonne of Urea produced Rs. 7000
Fuel (NG) Cost Rs. 4000
Gas F/S requirement per tonne of Urea 697 ScM
NG Price Rs. 5.73/ScM
Source: IMRB
The natural gas price lower than Rs 5.73/ScM would be

competitive for Greenfield gas based plant.
Table 3.29: Imputed Value for Brownfield Naphtha Based

Fertilizer Plant
Fixed cost per tonne of Urea Rs. 122

Other Variable Expenses Rs. 200
Total Cost per tonne of Urea produced Rs. 7000
Fuel (NG) Cost Rs. 6678
Gas F/S requirement per Tonne of Urea 697 ScM
NG Price Rs. 9.58/ScM
Source: IMRB
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Notes The natural gas price lower than Rs 9.58/ScM would be

__________________ competitive for Greenfield gas based plant.
__________________
3. Steel Plants: The table 3.30 below illustrates the
__________________
natural gas demand for every tonne of steel produced.
__________________
__________________ Table 3.30: Calculations for every tonne of steel produced
__________________
__________________ Replacement Conversion into NG NG Demand
__________________ Coke replaced in blast furnace for =570 x 0.5 x (6500/9400) 197 ScM
every tonne of steel produced
__________________
Coke oven gas production reduced (114/2) x (4000/9400) 22ScM
__________________ to half
Fuel oil completely replaced 15 x (10200/9400) 16 ScM
Total 235 ScM
Source: IMRB
The following table 3.31 gives the ceiling price of natural

gas viz--viz coke.
Table 3.31:Calculations for price per ScM of Natural Gas
Parameter Conversion
To produce 570 Kg. Of Coke 826 Kgs. of coking coal is
required
To produce 285 Kg. Of Coke 413 Kgs. of coking coal is
required
Price of coking coal Rs. 2500/tonne
Thus, 413 Kg. of coking coal Rs. 1033
is equal to
Thus, 235 ScM Rs. 1033
1 ScM of Natural Gas 1033/235 = Rs. 4.4/ScM
Source: IMRB
The ceiling price of natural gas is Rs. 4.4/ScM for the

steel plants.
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4. Carbon Black: Natural gas is used to replace carbon Notes
black as the feedstock. The table 3.32 below shows the __________________
calculations of the ceiling price of natural gas viz--viz __________________
carbon black. The ceiling price of natural gas works out __________________
to be approximately Rs. 6.35/ScM. __________________
Table 3.32: Calculations for every tonne of Carbon Black __________________

replaced __________________
__________________
US $ price of 2.2 CBFS 2.2 x 150 = 330 US$
__________________
1.56 Tonnes of Natural Gas 1.56 x 1000/0.6 = 2600 ScM
__________________
Natural Gas Ceiling Price in US$ 330/2600 = 0.127 US$
__________________
Natural Gas Ceiling Price in INR (1 US$ = Rs. 50) 0.127 x 50 = 6.35 INR/ScM
Source: IMRB
5. Coal Gas-based Plants: Coal Gas is supplied at

Rs. 22-30/ScM. Considering the calorific value
comparison of two gases, the ceiling price of Natural
Gas works out to be approx. Rs. 31/ScM.
6. Cement Segment: The table 3.33 below shows the

natural gas ceiling price viz--viz the coal used in the
cement sector.
Table 3.33: Calculation for price per ScM of Natural Gas
Parameter Conversion
Natural Gas required for 1 .33 MMSCMD
MMT of Cement per year
capacity plant
Coal required for 1 metric 0.2 MT
tonne of cement
Natural Gas required per tonne (0.33 x 106)/3030=110
of cement is
ScM
Cost of Natural Gas per ScM (0.2 x 2200)/110 = Rs 4/Scm
Source: IMRB
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Notes The natural gas ceiling price for the cement sector works
__________________ out to be Rs. 4/ScM. The change over cost to gas for the
__________________ cement plant is negligible.
__________________
Table 3.34 : All India Current Average Daily Gas Sale
__________________
__________________ (MMSCMD)
__________________
Sector APM Non APM R-LNG Total
__________________
__________________ Power 23.4 7.3 1.5 32.2
__________________
Fertilizer 14.7 3.0 5.9 23.6
__________________
Sponge Iron 2.0 0.0 2.1 4.1
Other 15.1 6.5 6.6 28.2
Total 55.1 16.8 16.1 88.1

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UNIT 4 End Use Consumption 65
Unit 4 Notes
__________________
__________________
End Use Consumption __________________
__________________
__________________
__________________
Objectives __________________
y How the Gas has been used as Fuel for Power. __________________
y Advantages & Disadvantages of use of Natural Gas as a Fuel __________________
y Major Players Operating in Oil & Gas Sector.
Natural Gas is used for energy and non-energy purposes.

The former indicates the use of natural gas in power sector,
sponge iron industry, tea plantation and domestic sector. As
a non-energy use, natural gas is used as a feedstock in
fertilizer and petrochemical industry. There has been an
increase in natural gas offtake for energy purposes by nearly
9.09% for the period 1990-91 to 2002-03. Likewise natural
gas consumption for the non-energy purposes has increased
by 3.6% over the same period, as shown below in Figures 4.1,
4.2 & 4.3.
Figure 4.1 : Percentage Share of Natural Gas Consumption

for Energy & Non-energy Purposes (2002-03)
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Notes
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
Figure 4.2 :Natural Gas Offtake for Energy & Non-energy
__________________
Figure 4.3 :Industry-wise Offtakes of Natural Gas in India

(2003-04)
Figures for 2002-03 are provisional.

@ Excludes Offtakes of Natural Gas by ONGC
Source: ONGC, OIL, DGH and GAIL
The lightest hydrocarbon, methane or lean gas can be used

either as a feedstock for fertilizer plants or as a fuel for power
plants. The mixture of ethane and propane is used as
petrochemical or fertilizer feedstock or even as a fuel. The
mixture of propane and butane is usable as LPG. The natural
gas liquids based on their composition can be extracted to
result in either naphtha (lower boiling point hydrocarbons).
In compressed form (CNG), natural gas can also be used as
an automobile fuel. Furthermore, there exist some limited
commercial applications referred to as gas conversions where
natural gas has been converted to diesel.
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Natural gas is used as an industrial fuel in sponge iron Notes
industry, as it is more energy efficient compared to the coal. __________________
The final product obtained from the gas-based system is clean __________________
and free from non-magnetic materials, which are generated __________________
in the coal based process. The carbon and oxygen content in __________________
the product in a gas-based system is balanced favouring its
__________________
use in the manufacture of steel.
__________________
Industry wise off-take of Natural Gas __________________

__________________
Fertilizer and power are the two main sectors contributing to
__________________
over 70% of consumption of natural gas. The share of natural
__________________
gas consumption in power sector has increased from 28.4% in
1990-91 to 41% in 2003-04 and that for the fertilizer sector has
reduced from 43.96% in 1990-91 to 32% in 2003-04.
In the current fiscal year 2004-05, the total availability of

gas is to the tune of 80 MMSCMD. The sector-wise utilization
of gas is shown in the table 4.1 and the accompanying Figure
4.4, given below.
Table 4.1: Sector-wise Utilization of Natural Gas in 2004-05
(MMSCMD)
Sector Total Quantity
Fertilizer 22.214
Power 34.647
Petrochemical 5.091
Sponge Iron 3.778
LPG + Internal Consumption (IC) 3.552
City Gas 0.610
CNG 2.843
Industry 3.469
Others 4.012
Total 80.216*
* Includes direct sale by other producers

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Notes
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________ Figure 4.4 : Sector-wise Utilization of Gas in 2004-05
Gas as Fuel For Power

Introduction
Ministry of Power has set a target of providing access to
power to all households by the year 2012. Keeping this target
in view, a capacity of more than 1,00,000 MW is required to
be added during X and XI Plan. Out of this, it has been
planned to add 41110 MW during X Plan, which comprises
of 25417 MW thermal, 14393 MW hydro and another
1300 MW nuclear.
Since commitment is to provide affordable power to all

within stipulated timeframe in a sustainable manner, right
fuel mix based on well diversified portfolio of indigenous and
imported sources becomes of crucial importance. The Indian
energy sector is one of the most diversified in terms of fuels
being used for generation of power.
Share of gas based projects in power generation

(as on 30.6.2004)
The total installed power generating capacity as on 30.6.2004
is 112581 MW out of which thermal segment accounts for
78491 MW. The break up of thermal segment into coal, gas,
diesel, etc. along with percentage share of the gas based
power plants is given in the following table 4.2.
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Table 4.2 : Break up of Thermal & Gas based power plants Notes
__________________
S. Region Thermal Gas based Gas based
No. installed installed __________________
Coal Gas Diesel Total
capacity capacity
__________________
as % of as % of
total total __________________
installed thermal
capacity capacity __________________
1. Northern 15915 3213 15 1914 10 17 __________________
2. Western 20792 5035 17 25845 16 19 __________________
3. Southern 13393 2650 939 16982 9 16 __________________
4. Eastern 15027 190 17 15235 1 1 __________________
5. N. Eastern 330 751 143 1223 32 61 __________________
5. Island 0.00 0.00 64 64 0 0
6. All India 65456 11840 1196 78491 11 15
The sector-wise gas based installed capacity is given in figure

4.5 below.
Figure 4.5 : Sector-wise Gas Based Installed Capacity
Tenth Plan targets for setting up gas based power

projects
A capacity of 7378.94 MW is envisaged comprising of gas
based power projects. Out of this, a capacity of 722.342 MW
has been commissioned so far.
Conclusions of Report of Expert Committee on Fuel

for Power Generation
An expert committee on Fuels for Power Generation was
constituted by CEA under the chairmanship of Member
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Notes (Planning) in May, 2001 with members drawn from NTPC,

__________________ Ministry of Petroleum & Natural Gas, Ministry of Coal,
__________________ Planning Commission, Oil Coordination Committee, PTC and
__________________ TERI to carry out a comprehensive exercise to analyze and
__________________ suggest the feasibility of using different fuels for power
generation in the country. The expert committee submitted
__________________
its Report in February, 2004 and the broad conclusions of
__________________
the Report are as follows:
__________________
__________________ Plants along pipeline is an attractive option at all distances.
__________________
At present the price of gas is administered whereas in future
it is likely to be deregulated and linked to international price
__________________
of crude oil. Therefore, since future trend of gas prices is not
known, the relative economics of gas based plants viz-a-viz
the other options could undergo a change in future.
Next best option is, domestic coal based power station

at pit-head followed by load centre located coal based station
at all distances. However, due to limitation of availability of
pit-head sites, a judicious mix of pit-head and load centre
stations has to be followed.
Lignite based power plants is the next best alternative

and is more economical than LNG, imported coal and
Naphtha based power stations. Lignite based plants may be
set up and efforts should be made to reduce the cost of
production so as to make it more economical.
LNG based plant at port and, imported coal based plant at

port are the next best alternatives. However, higher price
stability of coal in the international market may give
preference to imported coal based power plants over LNG
based power plants. Imported coal based plant at load centre
is marginally higher than both imported coal and LNG port
based stations. It may be noted that at short distances i.e.,
lesser than about 500 KM, imported coal based plant at load
centre is a cheaper option compared to the other
environmental stipulations, etc. may be considered while
firming up the location of imported coal based plant.
Naphtha based power stations are more expensive viz-a-viz

coal, lignite and LNG based stations. Naphtha based power
plants are the most expensive. In view of the difficult handling
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of Naphtha and wide fluctuation in its price in the past, it Notes
may not be advisable to go in for Naphtha based generation __________________
in future. __________________
__________________
For distributed generation at remote locations away from
the grid, setting up of small diesel based power stations shall __________________
be considered, as diesel is available throughout the country. __________________

__________________
Keeping in view the limited availability of coal and energy
__________________
security of the country, emphasis should be given for the
__________________
development of the nuclear power plants. All steps to
accelerate the research and development for realizing the __________________
energy potential of thorium must be undertaken. __________________
Hydropower development should be given priority not only

to improve hydrothermal mix for optimizing the efficiency
of our power system and usage of our resources for
sustainability, but also to minimize dependence on thermal
power so as not to add the various pollutants in the
environment.
Emerging fuels such as coal bed methane may be considered

at appropriate time when it becomes commercially available
for power generation.
Advantages and disadvantages of use of gas as a

fuel
The Key Advantages
Combined cycle gas turbine power plants have better

efficiency or heat rate compared to coal based plant. The
station heat rate for 210/250 MW coal based power plant is
2460 Kcal/Kwh whereas, the same for a combined cycle plant
is 2000 Kcal/Kwh. The efficiency of gas based combined cycle
power plant is rated as 50 to 55% in comparison to 36 to 42%
of coal based power plant
The gestation period for establishing a gas based combined

cycle power station(400MW) is about 24 months, whereas a
corresponding coal based station takes about 30 months.
The normal start up time from cold conditions for a gas based
combined cycle plant and coal based plant is 4 hours and 8
hours respectively.
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Notes The initial investment required for a gas based combined

__________________ cycle gas turbine station is Rs. 3 to 3.5 Crores per MW
__________________ whereas the same for a coal based station is Rs. 4 crores per
__________________ MW.
__________________ There are no problems in natural gas transportation once
__________________ the pipelines are laid.
__________________
Space requirement for a gas based station is 0.3 to 0.5 acres
__________________
per MW while for coal based stations the space requirement
__________________
varies from 1 to 1.5 acres per MW.
__________________
__________________
Consumptive water requirement is about 2.5 cubic meter per
MW in comparison to 3.5 to 5.0 cubic meter per MW in case
of coal. Some sections believe that gas is an environmentally
friendly fuel and therefore, its use may be encouraged.
However, it is Ministry of Power's consistent approach that
fuel choice for power generation is dependent upon the
criteria of national energy security. Therefore, it is
imperative to treat choice of fuel as a function of price
stability and long term availability of the fuel. On this criteria
coal remains of crucial importance.
The Key Disadvantages

Cost of spare parts is high as most of the spare parts are
imported.
Gas based machines have lower life span of 15 years.
Impact of gas shortages on Power Plants

Assured supply of gas to the existing power stations has
remained a problem area in the recent past. As per detail
received from NTPC, due to the shortage of fuel as input,
during 2002-03, the loss of generation was 2982 MU.
Similarly, during 2003-04, the loss of generation was 2843
MU.
Gas as a Fuel for Transport

Being a relatively clean fuel with lower emission levels of
SO2, NO2 and SPM, natural gas in its compressed form is
being promoted by the Government as a fuel for the transport
sector vide sales tax exemption and a lower custom duty of 5
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per cent on imported CNG kits as against a peak rate of 25 Notes
per cent. CNG as an automobile fuel improves engine __________________
efficiency. When CNG and air in the right proportions are __________________
brought together, they mix thoroughly and rapidly, thereby __________________
improving the combustion efficiency, while the engine stays __________________
clean internally. The running cost of CNG is lower as
__________________
compared to diesel and gasoline. The maintenance cost is
__________________
also low due to better fuel quality.
__________________
CNG has already replaced approximately 531 KL diesel and __________________
315 KL of petrol in Delhi. In Mumbai CNG has replaced 102 __________________
KL of diesel and 350 KL of petrol. However, it is difficult to
__________________
co-relate the value of petrol and diesel viz-a-viz quantity sold
in the last three years because of frequent price revision in
petrol and diesel.
CNG has a much higher-octane value than petrol, making it

a superior fuel. Due to the absence of any lead content in
CNG, the lead fouling of plugs is eliminated. Being a gaseous
fuel, CNG mixes with air easily even at very low
temperatures. The main features distinguishing CNG from
petrol and diesel are given in Table 4.3 below.
Table 4.3 : Features distinguishing CNG from Petrol/Diesel
Properties Unit CNG Petrol Diesel

Liquid Specific Gravity - - 0.74 0.84
Heat of Evaporation Btu/lb - 160 200
Density relative to air Air = 1 0.6 3.4 3.9
O
Auto ignition C 540 232 282 225
Temperature
Flammability Limit per cent 5 15 18 0.6 5.5
in Air
O
Flame Temperature C 1,790 1,977 2,054
Octane No. - 127 87 -
Cetane No. - 10 10 45
Gas as Petrochemicals
Gas based petrochemicals production plants rely on domestic
production of C2/C3 fractions by processing of gas. In
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Notes addition, it is understood that imports of ethylene is also

__________________ done to certain extent by petrochemical units. The
__________________ Department of Chemicals and Petrochemicals has furnished
__________________ the following requirements of C2/C3 for petrochemical plants
__________________ during 2002-07 (Table 4.4).
__________________ Table 4.4: Estimated C2/C3 Requirement for
__________________ Petrochemicals Sector
__________________
(Thousand Metric Tonnes)
__________________
__________________ Plant 2002-03 2003-04 2004-05 2005-06 2006-07
__________________ IPCL MGCC-

I 683.7 683.7 940.0 940.0 940.0
Nagothane
IPCL,
II 460.2 460.2 460.2 612.0 612.0
Gandhar
III GAIL, Pata 370.0 425.0 470.0 470.0 595.0
TOTAL 1,513.9 1,568.9 1,870.2 2,022.0 2,147.0
Source: Report of the Sub-Group on Natural Gas Availability
The above requirements of C2/C3 are also based on capacity

expansions planned. As regards production of C2/C3 from
gas, ONGC has facilities at Uran for supplies to IPCL - MGCC
plant at Nagothane whereas IPCL, Gandhar and GAIL
process gas for production of C2/C3 for captive use. ONGC
has indicated the production of C2/C3 during the Tenth Plan
as given in Table 4.5 below.
Table 4.5 : ONGC's Production of C2/C3 during Tenth Plan
(Thousand Metric Tonnes)
2002-03 2003-04 2004-05 2005-06 2006-07

ONGC 496 510 483 452 428
Source: Report of the Sub-Group on Natural Gas Availability
GAIL would be in a position to enhance C2/C3 production at

its Pata plant to support capacity enhancement through the
de-bottlenecking/expansion program. The Department of
Chemicals and Petrochemicals has also indicated that the
Assam Gas Cracker Project is likely to be set up during the
Tenth Plan Period. The plant would have an initial capacity
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of 200,000 annum/annum of ethylene and about 6.35 MMSCMD Notes
of gas would be processed to recover C2/C3 required for this __________________
plant. The Assam Gas Cracker Project is expected to be __________________
commissioned during latter part of the Tenth Plan Period. __________________
__________________
Gas as Feedstock
__________________
The fertilizer industry, particularly nitrogenous fertilizer, __________________
is highly energy intensive.It is one of the largest consumer __________________
of petroleum based fuels and feedstock.The fertilizer sector __________________
is one of the two biggest customer segment for the natural
__________________
gas along with power sector.In 2002-03, the offtake by
__________________
fertilizer sector was 26.5 % while for power sector it was
35.1%.The production of fertilizer in India in 2002-03 was
14.7 MMTPA while the total consumption of 2003 was about
18MMTPA.The import accounted for the rest. The
consumption has grown at a CAGR of 1.76% in past four years.
Natural gas is used in manufacturing of nitrogen based
fertilizer which accounted for around two- third of the total
consumption though its share in the total fertilizer
consumption is slightly decreasing while the share of
phosphatic and potassic based fertilizer is increasing. The
total nitrogenous capacity of the fertilizer plants is about
11MTPA. About 43% of this capacity is only natural gas
based, 18% capacity is based on dual fuel of gas and naptha,
8% only on fuel oil including LSHSand 3%plants are based
on plants that use naptha and fuel oil.Natural Gas is the
preferred feed stock because of the lower capital cost and
operating of the gas based fertilizer plant. Further they have
high energy efficiency and are relatively environment
friendly and give better capacity utilization. Producing one
metric tonne of ammonia with natural gas requires just 9.26
Gcal of energy while naptha based and fuel oil based plants
requires 11.3 Gcal and 14.3 Gcal respectively. Currently,
private sector accounts for 48.3% of nitrogenous fertilizer
production as compared to 26.7% and 25% for public and co-
operatives enterprises.
Methane is the best known feedstock for hydrogen

production. Natural gas being highly rich in methane enjoys
an added advantage over naptha.The Department of
Fertilizer has indicated that as against the actual supply of
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Notes 22.10 MMSCMD gas to the fertilizer sector in 2001-02, the

__________________ total gas requirement in 2006-07 would be 43.6 MMSCMD.
__________________
__________________ Players Operating in Oil & Gas Sector
__________________ 1. Assam Gas Company Ltd.
__________________
2. Bharat Petroleum Corporation Limited (BPCL)
__________________
__________________ 3. Bongaigaon Refineries Petrochemicals Limited (BRPL)
__________________
4. BP International Limited
__________________
__________________ 5. BG India
6. Cairn Energy India (UK)
7. Canoro Resources Limited
8. Centurion Energy International Inc., (Canada)
9. Chennai Petroleum Corporation Limited (CPCL)
10. Engineers India Limited
11. Enpro India Ltd.
12. Essar Oil Ltd.
13. Exxon Mobil
14. Gaz de France
15. GAIL India Limited
16. GeoGlobal Resources Inc.
17. Gujarat Adani Energy Limited (GAEL)
18. Gujarat Gas Company Ltd.
19. Gujarat State Petroleum Corporation
20. Hardy Exploration Production India Inc. (HEPI)
21. Heramec Limited
22. Hindustan Oil Exploration Company Limited
23. Hindustan Petroleum Corporation Limited (HPCL)

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24. Hydrocarbon Res. Dev. Co. (P) Limited Notes
__________________
25. IBP Co. Ltd.
__________________
26. Indian Oil Corporation (IOC) __________________
__________________
27. Indraprastha Gas Ltd.
__________________
28. Joshi Technologies International, Inc. __________________
29. Kochi Refineries Limited (KRL) __________________

__________________
30. Larsen and Toubro (L&T)
__________________
31. Mahanagar Gas Ltd. __________________
32. Mangalore Refineries Petrochemicals Limited (MRPL)
33. Mosbacher India LLC, (Australia)
34. Niko Resources
35. Numaligarh Refineries Limited (NRL)
36. OAO Gazprom (Russia)
37. Oil and Natural Gas Corporation (ONGC)
38. ONGC Videsh Limited
39. Oil India Limited (OIL)
40. Okland International LDC
41. Petrocon India Ltd. (Earlier Videocon Petroleum Ltd.)
42. Petroleum India International (PII)
43. Petronet LNG Limited
44. Phoenix Overseas Ltd.
45. Premier Oil
46. Pune Gas Limited
47. Ravva Oil (Singapore) Pvt. Limited
48. Reliance Industries Limited
49. Samson Inc.

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Notes 50. Selan Exploration Technologies Ltd.

__________________
51. Shell
__________________
__________________ 52. Tata Petrodyne
__________________
53. Total
__________________
__________________ 54. Tripura Natural Gas Company Ltd. (TNGC)
__________________ 55. Tullow Oil plc
__________________
56. Unocal Bharat Limited
__________________
__________________ 57. Zarubezhneft
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UNIT 5 Import Options 79
Unit 5 Notes
__________________
__________________
Import Options __________________
__________________
__________________
__________________
Objectives __________________
y Different Import Options. __________________
y LNG Import. __________________
y Recent Developments in Asian LNG Market.
y New Project & Pricing.
Import Options
The increased energy demand driven by high economic
growth has widened the demand-supply gap. The demand
for natural gas in particular, has been rising because of its
environmental friendly nature, making it a competitive fuel/
feedstock in power and fertilizer sectors. The existence of
inferior quality coal coupled with high transportation costs
and environmental concerns is grossly eroding its usage for
meeting energy demands. With the result, natural gas is
emerging as a popular fuel. However, with low level of
indigenous production, there is a need for importing gas
either in its liquefied form or through the pipelines.
There are significant gas reserves in countries adjacent to

India that could be utilized to meet the import requirements
indicated by the supply shortfall. These reserves are
primarily concentrated in the Middle East (Iran and Qatar),
Turkmenistan, South Asia (Indonesia, Malaysia) and
Australia. Iran provides both a possible source of gas and
the best access to the gas/oil reserves of Central Asia.
The gas reserves in the eastern neighbourhood are of

strategic importance to India. Myanmar had initial success
in the exploration of her offshore reserves. Bangladesh has
an active exploration program and a large potential for
exploring gas. Indian Government thus, has been actively
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Notes thinking of a long-term co-operation with these two nations

__________________ in the field of energy. The specific areas involved include
__________________ the following:
__________________ n Exploration
__________________
n Import through pipeline
__________________
__________________ n Indian investment in the manufacture of value-added
__________________ products such as power or fertilizers with buy-back
__________________ arrangements.
__________________
Import through pipelines
__________________
Import from Iran
An MoU was recently signed between India and the Islamic
Republic of Iran in January, 2003 with the following
Modalities of Co-operation identified by the two sides:
n Exchange of information and analysis of international

hydrocarbon markets as well as actual hydrocarbon
demand and supply position in Iran and India.
n Exchange of information on studies and projects related

to the hydrocarbon sector.
n Exchange of training and human resource development

activities in hydrocarbon sector.
n Joint publication of non-confidential information on the

activities within this MoU.
n Exchange of information related to investment models,

contractual agreements, fiscal and customs system.
n Establishment of Joint Ventures to invest in oil and gas

projects in India and Iran.
A Joint Working Group has been established to achieve the

objectives envisaged under this MoU. This group will
endeavour to enter into separate agreements on the specific
aspects of the hydrocarbon sector.
GAIL (India) Limited, the flagship national gas company of
India is actively pursuing opportunities pertaining to Iran.
Some of the key highlights are:
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n Indo-Iran Co-operation: Notes
__________________
n GAIL is the nodal agency for gas business (LNG/CNG)
__________________
in the consortium.
__________________
n GAIL is a partner in E&P __________________
n MoU with National Iranian Oil Co. / National Iranian __________________

Gas Exports Co, Iran. __________________
__________________
n Iran-India Pipeline/ Gas Sector Cooperation.
__________________
n MoU with Iranian Fuel Consumption Optimization __________________
Organization, Iran.
__________________
n CNG Infrastructure/ Marketing.
n Coselle Technology.
A pipeline was earlier proposed by GAIL from Iran, crossing

Pakistan and entering India in the western Rajasthan region
spanning a significant distance of around 2,670 km. But the
long standing difficult relationship between India and
Pakistan has thus far impeded the progress.
The Government of India signed an MoU in 1993 to develop
a project to transport 50-75 MMSCMD of gas via a pipeline
on an offshore route outside of the territorial waters of
Pakistan landing in Kutch in India. The feasibility study was
launched in early 1995, but so far work has not started, as
permission has not been granted for offshore, surveys in the
waters of Pakistan. Clearly the acceptability of installing a
pipeline within the Pakistan Exclusive Economic Zone (EEZ)
requires confirmation before a pipeline route can be
considered in the shallower waters.
A pipeline route avoiding the Pakistan EEZ will traverse
areas of rock outcrops steep slopes and canyons and would
require a significant amount of investigation in order to
determine whether an acceptable pipeline route can be
identified. There is a possibility of the pipeline requiring
installation in water depths of approximately 1,000 meter,
which will impose a limit on the diameter of the pipeline
that can be installed. Depending on the required flow rate,
it may be necessary to install two smaller diameter pipelines
in order to utilize currently available installation vessels. In
addition the Makran Coast Offshore, Iran and Pakistan
exhibits seismic action because of the differential plate
movement and this would require detailed investigation.
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Notes Import from Bangladesh and Myanmar

__________________
The feasibility of importing gas from Bangladesh and
__________________
Myanmar to the eastern/southern parts of the country is also
__________________
being explored. There has been substantial interest from the
__________________ international oil community in the development of pipelines
__________________ from Bangladesh to India, on the strength of some recent
__________________ discoveries. It is fair to say that the state oil company in
__________________ Bangladesh, PetroBangla, or indeed the Bangladesh
__________________ Government has not shown the same level of interest. The
current feeling in Bangladesh is that at present there are
__________________
insufficient reserves to support significant export projects.
__________________
The discovery of new reserves is likely to go some way to
change this view, particularly considering the need in
Bangladesh for foreign currency earnings. According to a
recent report, Bangladesh Government has given approval
for limited gas exports to India. There are several possible
options for export from Bangladesh, by land into West Bengal
and an offshore line from the Chittagong area to West Bengal.
Oman-India pipeline
An MoU has been signed between the Sultanate of Oman
and the Government of India for establishing the India-Oman
Strategic Consultative Group. The main aims of the Strategic
Consultative Group are to discuss specific matters of
strategic importance that may contribute directly to
strengthening bilateral relations and to coordinate and
facilitate the implementation of joint strategic projects. The
Hydrocarbon Sector Co-operation with Oman is being
pursued over the last many years and there has been success
in certain areas. Within the framework of the bilateral MoU,
it would be desirable to include Hydrocarbon Sector Co-
operation as one of the areas of strategic importance.
Hydrocarbon supplies to India in future may emerge directly
from Oman (LNG) or may involve Oman as a transit country
for gas from other West Asian Countries (Qatar, Iran).
One among many initiatives with Oman for Hydrocarbon

Sector Co-operation is the Oman-India Gas Pipeline on which
substantial work was done through the period 1993-95 and
it is understood that Oman Oil Company had spent about
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US$ 50-60 million in various studies and analysis. The Oman- Notes
India Gas Pipeline project did not take off because of technical __________________
limitations of deepwater pipeline, inadequacy of proven gas __________________
reserves and hence, non-availability of project finance. GAIL __________________
was the nodal agency from the Indian side in this project. __________________
__________________
Turkmenistan-Afghanistan-Pakistan-India pipeline
__________________
A consortium led by Unocal viz. Central Asia Gas Pipeline __________________
Limited, examined the proposal to develop a 1250 km long
__________________
gas pipeline from Turkmenistan's Daulatabad field to Multan
__________________
in northern Pakistan. The pipeline was to be designed with
__________________
the aim of extending it to north India over a distance of 600
to 700 km. Studies undertaken envisaged no unusual
engineering challenge to constructing the pipeline system
over a period of two years at an estimated cost of $ 2.0 to 2.5
billion. No further progress could be made because of political
unrest and totally unsettled conditions in Afghanistan.
A joint working group was subsequently set up in May 1999

by the Governments of India and Turkmenistan to study the
possibility of gas transportation from Turkmenistan to India
without passing through Afghanistan. One option was to lay
a gas pipeline from Turkmenistan to Iran from where
supplies could reach India. However, the same problem
would be faced as in the case of the Iran- India pipeline.
LNG Imports
In view of the problems faced by the gas pipeline projects,
LNG import options have been pursued to meet immediate
needs for imported gas. Proposals for constructing LNG
terminals have been made by various consortia of Indian and
multinational oil and gas companies and promoters of power
plants. The LNG trade is undergoing a transformation as
new suppliers emerge in West Asia. The downturn of LNG
demand in South Korea and Japan has made India a key
market for LNG.
LNG is likely to account for most of India's gas imports in

the near future. The government has been increasingly
emphasizing on the need for domestic companies to
participate in the LNG supply chain, including investments
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Notes in the LNG exporting countries, to ensure security of supply

__________________ and transparency in transactions involved in this trade.
__________________ Import of LNG is under OGL. A number of projects for setting
__________________ up of LNG terminals have been approved by the government.
__________________ The Dahej LNG terminal completed its mechanical
completion on December 28, 2003. The other terminal, Hazira
__________________
is being constructed by a consortium led Shell Gas B.V, which
__________________
is a wholly owned subsidiary of the Royal Dutch / Shell Group
__________________
of Companies.
__________________
__________________ Pipeline Vs LNG
__________________
Gas transported by pipeline is usually cheaper than that by
LNG over shorter distances. A typical rule of thumb used is
that pipeline gas is cheaper for distances up to 3,000-4,000
km for an onshore pipeline and up to 1,000-2,000 km for an
offshore pipeline. This rule must be qualified against gas
quantities, type of terrain, water depth, etc. but serves as a
very general guide.
As almost all the fixed costs are proportional to the pipeline

diameter, there is significant opportunity in pipeline projects
to improve the project economics by increasing the pipeline
diameter. The incremental steel cost will be proportional to
the diameter of the pipe whereas the incremental flow will
be proportional to the square of the diameter.
Given that a pipeline is in a fixed location from a fixed source

to the market, there is potentially a greater security of supply
issues associated with pipelines. However, the reality of the
LNG trade to date is that projects have been funded on a
reserve life and market demand life basis.
In a pipeline project, there is limited scope for increasing

flow, particularly on a long distance line. Therefore, a pipeline
project needs to reach operating capacity as soon as possible
after construction. There is more scope for an LNG project
to be phased, for say 2.5 MMTPA to 5 MMTPA although there
are significant economics of scale to be realised in building
larger LNG projects.
Both import pipeline and LNG projects will have significant

technical, commercial and political risks, which will require
mitigation in order for a project to materialize.
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Table 5.1: Details of LNG Projects Notes
__________________
S. Project Developer Capacity LNG Suppliers Project
No. Location (MMtpa) Completion __________________
1 Dahej (Gujarat) Petronet 5 (To be Ras Laffan LNG Co. Commercial __________________
LNG Ltd. expanded Ltd (Ras Gas) Operations began
to 10 in April 2004. __________________
MMtpa) Expansion of the __________________
project to 10
MMtpa to be __________________
completed by
2008 __________________
2 Kochi (Kerala) Petronet 2.5 Ras Laffan LNG Co. 2008 __________________
LNG Ltd. Ltd (Ras Gas)
__________________
3 Hazira (Gujarat) Shell Gas 2.5 Australia 's North June 2005
B.V and (Phase-I), West Shelf Train 4 __________________
Total Gaz 5.0 Project
Electricite (Phase-II)
Holdings
4 Dabhol GE, Bechtel, 5 Oman LNG 80% complete.
(Maharashtra) MSEB (OLNG) & Abu The project is on
Dhabi Gas hold.
Liquefaction
Company (ADGAS)
5 Ennore (Tamil CMS Energy, 2.5 Ras Laffan LNG Co. On Hold
Nadu) Grasim Ltd (Ras Gas)
Industries,
Unocal
Bharat,
Woodside
Petroleum,
Siemens
6 Krishnapatnam IOC, 2.5 Petronas On Hold
(Andhra Cocanada
Pradesh) [Earlier Port
proposed to be at Company,
Kakinada] Petronas,
British
Petroleum
7 Mangalore ONGC 10 Yet to be decided 36 months after
start up
Recent Developments in Asian LNG Market

Overview
Wood Mackenzie has indicated that despite the increase in
demand for gas caused by combined cycle gas turbine use
and environmental concerns, the potential LNG supply far
exceeds world demand. The total demand by 2010 (despite
an 8% a year growth between 2003 and 2010) is anticipated
to reach barely 50% of the potential LNG supply. Though,
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Notes the differential will decrease thereafter as demand growth

__________________ outstrips supply growth, it will hover at 30% by 2025. There
__________________ are expansions planned for most of the Asian liquefaction
__________________ plants with Brunei 5th and 6th train and the North West
__________________ Shelf 4th train being notable examples. New projects are
planned at Tangguh in Indonesia, Sakhalin in Russia and
__________________
Greater Gorgan, Bayu Undan and Sunrise all in Australia.
__________________
__________________ One of main drivers for this huge expansion is cost reduction
__________________ principally, at the liquefaction plant and LNG shipping parts
__________________
of the chain. Shipping costs have reduced by about 50% over
the past five years and comprise about 30% of a project's
__________________
capex. Competition, economies of scale, better project
management, technology and plant commoditisation have
contributed significantly to the reduction in costs.
A major development taking place in the Asian LNG sector

is the entry of West Coast USA. The gas consumption in USA
is eight times that of Japan and Japan is currently the largest
consumer of LNG in the world. Three out of the four
regasification terminals in USA are based on 'open access'.
Access to the market through its capacity rights in Lake
Charles has been a crucial factor in the development of BG's
Atlantic LNG V and ELNG II in Egypt. However, the
Hackberry decision means that terminals can now be built
without having to offer third party access which eases the
financing.
New Projects
The opening up of West Coast USA will have a fundamental
effect on contractual structure, pricing and other terms such
as force majeure. There are around 11 planned LNG receiving
terminals. Sakhalin Energy has made it clear that they are
building their economics on the assumption that one LNG
import terminal on North America's west coast, either in
Mexico or California, will be in operation by 2007 or 2008.
The expansion is not restricted to US side of the Pacific. The
four terminals in China are matched by various terminals in
India like Dabhol, Pipavav, Hazira and Kakinada and
Indonesia where there are plans to set up two terminals.
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The number of LNG players are increasing as are the number Notes
of their roles. The main players are now into shipping, __________________
regasification and power generation. BP has stake in Tangguh __________________
production and liquefaction plant. It is now entering shipping __________________
and has also proposed to buy stake in Guangdong __________________
regasification terminal.
__________________
Shell has stake in Brunei, Sakhalin and Hazira LNG __________________
terminals. Tractebel and Cabot are both traditionally buyers __________________
of LNG and now hold equity in Atlantic LNG while Union __________________
Fenosa have moved from power generation right to __________________
liquefaction facilities. Petronas has now established Asian
__________________
LNG Trading Co. Ltd. to look for opportunities to act as a
market maker for short-term LNG and utilise any unutilized
capacity in Petronas shipping arm MISC, which has the
world's largest LNG fleet, for third parties.
Pricing
US pricing is driven by the fact that gas is a commodity with
highly variable volumes and prices. Pricing is generally based
on Henry Hub and suppliers are price takers. Netbacks
where the upstream supplier gets the downstream sale price
net of costs are common. But prices are generally forecast to
be attractive for sellers. Certainly, the spike in Henry Hub
during the winter of 2002-03 to USD 10 MMBtu made USA a
very attractive market for redirected cargoes. Take-or-pay
is less of an issue because the price is roughly market-
determined. Given the market's liquidity, there is always a
buyer for the gas at the market price The market's
sophistication also allows hedging which adds another level
of comfort.
In contrast, Asian pricing has traditionally been based on a

basket of spot crudes usually either Japanese Custom
Cleared (JCC) or an average of Indonesian exported crudes.
Various levels of premia are applicable when crude prices
are low but these tend to disappear at crude price of around
USD 29 a barrel. It is common to see 'most favoured nation'
clauses in contracts which seek to ensure that a supplier is
obliged to keep the terms offered to the buyer competitive
in relation to newer deals.
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Notes Generally, the formulae in existing Asian deals produce

__________________ stable results and predictability. However, in a high oil price
__________________ environment, these formulae hurt buyers particularly when
__________________ they can sense the deals being offered by the new projects in
__________________ competitive tenders. In order to avoid losing market share,
__________________
price cuts were apparently offered to Japanese buyers by
Malaysia for the first time in the industry's history. The trend
__________________
also seems to lessen the link to crude prices. The Guangdong
__________________
Plus formula apparently has reduced the traditional 75%
__________________
weighting given to crude prices to about 35%. The rationale
__________________ is that LNG's main competitor for the fuel for Chinese power
__________________ is not oil but coal. There has also been a move to link LNG
pricing to power pricing. This was the case with the Atlantic
LNG sales to regasification and power facility at Bilbao and
in the sale by Ras Laffan LNG Co. Ltd. (RasGas) to Petronet
LNG Ltd. which reflected the capped and collared pricing in
the downstream gas sales and made a link to coal prices rather
than to oil or naphtha which are regarded as too volatile and
less relevant to Indian power sector.
In both Oman LNG and RasGas, no floor LNG price was

required by the lenders of those projects. This is the norm in
the crude oil projects where there is a liquid market and
lenders are willing to accept market risk but this has not
been usual in power or LNG developments. Both these
projects will benefit from very low unit costs and are,
therefore, robust at low prices.
Quantities and Term
Offtakers now need much more flexibility not only for portfolio
building and arbitrage but also for structural reasons. Korea
is a good example of this. Korea has always had substantial
seasonal swing but now sellers are finding problems in Korea
because of the debate over the break-up and privatisation of
Kogas. This is against the backdrop of old long-term supply
contracts beginning to expire such that the pressure to find
new supplies has been growing. Japan is in a similar position
where liberalizing markets for power and gas will increase
competition and lead to LNG offtake uncertainty. Flexibility
in demand profile is becoming crucial.
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Some of the new seven-year deals in Korea and Petronas Notes
contracts in Japan allow seasonal variations in offtake __________________

pattern and also higher levels of swing for the buyers. Atlantic __________________
LNG is also allowing more flexibility for swapping cargoes, __________________
which allow buyers to swap in more lucrative markets. Other __________________
contracts are becoming more innovative with options being __________________
built in for offtake flexibility. Traditionally, the buyer was
__________________
allowed to flex his offtake obligations over only a small
__________________
percentage of LNG and only at specified times in the contract
__________________
year. Now, the trend is for buyers to demand (and receive)
up to 30% variation with no cumulative maximum. The ability __________________
to reduce offtake so substantially is a very significant factor __________________

for the project's lenders. Those lenders will require the
comfort of a relatively liquid short-term market through
which the LNG which is not taken can be sold.
Although the softening of take-or-pay is an important factor,

the commitment is still around 90% of ACQ (Annual Contract
Quantity). This minimum take still represents a significant
impediment to the liberalization of the market, although this
is to an extent balanced by the production creep which tends
to make more LNG available and also by the destination flex
which allows the buyer (rather than the seller) to play the
market with its excess gas and arbitrage pricing differentials.
Shipping
Not only has the cost of LNG shipping come down but these
are now being chartered on FOB basis by the offtakers. There
is currently a shortage of free vessels. Over 30 new LNG
vessels are on order, of which 15-20 vessels are not dedicated
to any particular project. The multinationals are moving to
control the means of delivery of their LNG as a hedge against
offtake which is becoming less predictable. They are also
looking to hire their unallocated shipping capacity out to
third parties as well as trying to market any excess LNG.
This desire for flexibility is being reflected in the tanker
market where there has been a steady increase in the number
of ship hires of less than one year duration.
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Notes Offtake Certainty

__________________
One of the main obstacles facing the prospective Asian LNG
__________________
projects is gaining the offtake materiality and the legal
__________________
certainty to be financially viable. Some projects such as
__________________ Malaysia's MLNG Tiga have already created their own
__________________ marketing momentum by proceeding with project
__________________ development with none or only a small proportion of their
__________________ capacity contracted. Sakhalin Energy has also adopted the
__________________ same approach of accepting volume risk on the basis that
buyers will have confidence in the project's ability to supply
__________________
on time because the project is being implemented as per time
__________________
schedule. It has now signed up four Japanese buyers for
around 3.1 MMtpa of offtake.
Sakhalin Energy is balancing the necessity to keep

momentum going on the project with the desire of both
bankers and sponsors for legal certainty in offtake
arrangements. The certainty for Sakhalin Energy and also,
for BP's Tangguh project appears to be based upon Heads of
Agreement and Memoranda of Understanding which are
probably not quite copper-bottomed legally binding 20 year
take-or-pay contracts. Nigeria LNG, BG and Petronas'
Egyptian project have both been secured against long term
sales. It is clear that the financial strength and broad
integrated LNG portfolios of players such as Shell and BP
give them the ability to manage high levels of risk.
Destination Clauses
The traditional LNG SPA specifies, through a destination
clause where all the buyer is permitted to sell the LNG and
this allows the seller to maintain market discipline. That is,
usually code for maintaining price differentials between
different markets which is anathema to the European
Commission. These provisions have been held to be anti-
competitive in the European Union. Intra-Asian trade will
not be affected by this EU legislation, but LNG which is sold
in the European Union must pass muster. Joint selling of
LNG and exclusive supply arrangements are also potentially
vulnerable under Article 81.
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Force Majeure Notes
__________________
One of the issues for selling Asian LNG into the new markets
__________________
of the USA will be in the arcane subject of force majeure.
__________________
Force majeure allows a party to escape liability for
contractual performance if that party is prevented from __________________
performing because of some 'act of God'. The definition tends __________________

to be much more wide-ranging. In the more developed __________________
markets such as UK and USA, where piped natural gas is __________________
dominant, force majeure relief is either not available for __________________
failure of the upstream supplier (in which case the seller __________________
will remain liable for delivery of gas) or, usually in the case
__________________
of R- LNG, provides only limited coverage with the seller
remaining liable for transportation and storage charges. The
justification is that the liquid market in these countries
allows alternative gas to be quickly sourced at market prices.
Even structures developed for the R-LNG market tend to be
more limited because of the competition from piped natural
gas. Less developed markets tend to give the seller much
more protection from force majeure events.
Contrast the position upstream where, the definitions of

force majeure are much wider and more particular. In contrast
to the relative commoditisation of contractual terms in the
downsteam developed markets, the history of LNG
development and precedent have delivered a very different
result. There is, therefore, a mismatch between upstream
LNG SPAs and downstream R-LNG supply agreements in
established markets such as the US. This means that the
marketing or retailing company which is buying the LNG
upstream and then regasifying and selling the gas should
expect to give force majeure relief upstream but not receive
force majeure relief for failure of its upstream supplier. The
marketing or retailing company might, therefore, be in
violation of downstream supply contracts if it did not source
alternative LNG and may be liable to pay capacity charges
to the pipeline company and the terminal company.
LNG Imports from Iran

In the short run, LNG imports will play a vital role in
fulfilling the massive demand of natural gas in India. Till
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Notes now, India has been able to source LNG imports only from
__________________ Qatar, although, efforts have been initiated to procure LNG
__________________ from various diverse sources like Iran, Yemen, Australia,
__________________ Abu Dhabi and Malaysia. The sourcing of LNG from Iran is a
__________________ part of the initiatives of Government of India under
Memorandum of Understanding entered by Indian Ministry
__________________
of Petroleum & Natural Gas (MoUP&NG) and Iranian
__________________
Ministry of Petroleum on January 27, 2003. National Iranian
__________________
Oil Corporation and GAIL were to conduct joint studies for
__________________ supply of gas from Iran to India and NIOC was to undertake
__________________ initiatives on Iran LNG Project aiming at supply of LNG to
__________________ India. India agreed to encourage and support its public and
private sector oil and gas companies to participate in the
development of LNG projects in Iran and to purchase LNG
from Iran at competitive prices and on mutually agreed
commercial terms. The first meeting of the Joint Working
Group (JWG) took place from May 8 to 12, 2003. In the
meeting, it was decided that 5 MMtpa of LNG would be
sourced in two phases comprising of 2.5 MMtpa each for a
period of 25 years. In lieu of this, the Iranian side agreed to
award one significant discovered oil field and another semi-
discovered oil field to Indian public sector undertakings for
development purpose. It also agreed to provide a
participating interest to an Indian PSU in downstream LNG
project. Further, it agreed to negotiate the awarding the EPC
contract of an upstream phase of south pars gas field to
produce the gas needed for importing 5 MMtpa of LNG to
India.
On January 7, 2005, GAIL and Indian Oil Corporation (IOC)

signed a pact with National Iranian Gas Export Corporation
to import 7.5 MMtpa of LNG from Iran for 25 years beginning
from 2009. IOC, along with GAIL and Iranian firm Petropars
will develop Phase-12 of the South Pars gas field in Iran.
The gas from this field will be converted to liquid form at
the liquefaction plant, and shipped to India. An MoU was
signed between ONGC Videsh Ltd. (OVL) and National
Iranian Oil Company (NIOC) whereby OVL will get 20%
share in the development of Yadavaran oil field. The share
of 20% would translate into 60,000 bpd of crude oil. Iran has
agreed to supply 5 MMtpa of LNG for 25 years starting from
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third quarter of 2009, with an option to take additional 2.5 Notes
MMtpa of LNG from 2011 subject to participation in Juffair __________________
Oil field. The FOB pricing formula has a fixed component __________________
and a variable component indexed to 12 months average of
__________________
dated Brent. The formula provides for lower ceiling for the
__________________
first two years of operation and a higher ceiling thereafter.
The first price review will take place after seven years from __________________
start of the contract and will take place after every five years __________________
thereafter. In case of substantial changes in some __________________
predetermined factors decided mutually by the parties, either
__________________
of the parties can exercise its right of price review. The
__________________
Indian consortium will be offered equity of 4% in Liquefaction
plant against purchase of every 1 MMtpa of LNG. The __________________
destination facility has also been provided wherein the buyer
will have the right to divert part of the contracted capacity
to other markets without undermining the seller's position
in the market. The gains are to be shared equally with the
seller. The Sales Purchase Agreement (SPA) is proposed to
be signed by June 2005.
GAIL has spelt out the composition specifications of LNG to

be supplied from Iran to India. The composition
specifications are same as that of LNG supplied by RasGas
to Petronet LNG Ltd. (PLL) for its Dahej LNG terminal. The
table 5.2 below details the composition specifications for
Iranian LNG.
Table 5.2 : Composition specifications for Iranian LNG
Component Composition (% of volume)
Minimum Maximum
Methane (C1) Balance Balance
Ethane (C2) 6.35 9.2
Propane ( C3) 2.19 3.0

Butane (C4) 1.00 2.0
Pentane and heavier (C5 +) 0.033 0.25
Nitrogen (N2) 0.39 1.25
Oxygen (O2) 0 0.5
o
Dew point water ( C) -10 -10
o
Dew point HC ( C) -40 -40
H2S 4 ppm 4 ppm
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Notes Conclusion
__________________
India's demand for natural gas is more than twice its present
__________________
domestic supply. The shortfall will continue to grow
__________________
necessitating import of large volumes of gas by pipelines and
__________________
LNG trains from multiple sources. The northwestern gas
__________________ market in New Delhi region is away from the coast and is
__________________ not within the economical range of LNG import. It would be
__________________ most economical to serve this market by an onshore gas
__________________ pipeline through Pakistan along the shortest route from
__________________ Turkmenistan, Iran or Qatar, whichever materializes first
__________________
or offers the lowest delivery price.
India and Pakistan are energy deficit countries and have so

far been relying on the import of oil alone to meet the energy
shortfall. Heavy reliance on imported oil continues to strain
the economies of the two developing countries. It is also
keeping them from realizing multiple benefits of the use of
natural gas. Natural gas is a more economical and efficient
fuel, and is also environmentally less damaging.
The sources of gas lie in Central Asia (Turkmenistan) or West

Asia (Iran and Qatar). Pakistan is an essential intermediary
for onshore and shallow water offshore gas pipelines from
Turkmenistan, Iran and Qatar. This gives rise to strong
complementarities in gas import between India and Pakistan,
which can be exploited by shared onshore gas pipelines.
Shared pipelines can bring the required volumes of natural
gas directly, over the shortest distances, to the demand
centers of Multan and New Delhi.
Gas pipelines economics are governed by the economies of

scale, Pakistan's projected demand for imported gas of up to
1.0 billion cubic feet per day is not large enough to exploit
the economies of scale. A Pakistan-alone gas pipeline may
not be economically attractive for the large investment
involved for another decade or so. This may curtail
Pakistan's ability to substitute natural gas for oil in power
generation to reduce the uneconomically high electricity
tariff. Alternatively, Pakistan may have to consider a more
expensive option of import of liquefied natural gas (LNG).
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In the absence of a shared onshore pipeline, India could Notes
import LNG and transport regasified gas to New Delhi __________________
through an internal pipeline system. This gas will be 20% to __________________
37% more expensive because of higher cost of LNG and the __________________
additional cost of internal transportation from the coastal __________________
terminals to New Delhi. High price of gas will strain India's
__________________
energy economy and depress the gas demand to the detriment
__________________
of the growth in economy.
__________________
India or Pakistan can individually follow its own course to __________________
import natural gas at the best terms available to it. It is only __________________
when they cooperate in gas import that they derive the
__________________
additional benefits from the economies of scale and the
optimization of interstate gas trading arrangements as
identified in the study.
India benefits by US $ 570 million to US $ 1000 million per

year through direct saving in the cost of 2.0 billion cubic feet
per day of gas delivered at New Delhi by a shared pipeline
in comparison with the most economical option of India-alone
gas pipeline or LNG. The benefits over 30 years life of the
pipeline would range from US $ 17 billion to US $ 30 billion.
Pakistan can benefit by over US $ 100 million per year in

direct saving in the cost alone of 1.0 bcfd of gas delivered at
Multan by using a shared pipeline. In addition, Pakistan
will benefit from transit fee running in millions of dollars
per year and, most importantly, from the flexibility of off-
take in response to its dynamic shortfall of gas.
The gas producing countries benefit from the shared

pipelines on account of economies of scale in development
and production, which reduces the unit cost of production
and increases the profit margin. The transit countries benefit
from the shared pipelines on account of larger throughputs
as the fee is commonly calculated on the basis of the volume
of gas transmitted.
Substantial indirect benefits that could accrue from the use

of the imported gas have been considered uniform for shared
pipelines or otherwise. However, it is less likely that the
required quantity of gas import would materialize from non-
shared options in view of the higher investment levels
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Notes required. The economies of the two countries may not be

__________________ able to absorb higher priced gas and the demands may go
__________________ down due to elasticity.
__________________
Apart from the tangible savings in the case of shared
__________________ pipelines, cooperation in gas import could lead to broader
__________________ cooperation and exploitation of complementarities in other
__________________ areas of economy. This could catalyze to cooperative approach
__________________ on both sides so settle the issues that have kept them on the
__________________ path of confrontation for over 50 years.
__________________ The tangible and intangible, and direct and indirect benefits
__________________ from shared gas pipelines constitute a compelling economic
factor that has the potential of bringing about a
rapprochement between India and Pakistan. Shared gas
pipelines promise a win-win situation for the gas exporting,
transiting and consuming countries. The pipelines could
usher in an era of peace and prosperity for the people of the
sub-continent. The pipelines could provide an expressway
for future economic integration of Central, West and South
Asia for the benefit of the people of the greater region.
It is a good time opportunity for the UN to act as an

interlocutor between India and Pakistan to facilitate an
agreement on gas import arrangements like that of the World
Bank in relation to the Indus Water Treaty (IWT) back in
1960. The World Bank had facilitated the IWT, which has
lead to a sustained cooperation in the sensitive area of sharing
of waters. A similar role by the UN could lead to cooperation
in another important area of sharing of gas import pipelines.
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UNIT 6 Transmission and Distribution 97
Unit 6 Notes
__________________
__________________
Transmission and __________________
Distribution __________________
__________________
__________________
Objectives __________________
y Capacity Utilization for Natural Gas. __________________
y Gas Pipeline Network in India. __________________
y Concept of existing Gas Pipeline Network.
y Benefits and Limitations of CNG.
Factors impacting Natural Gas Transmission and

Distribution
Gas supply
The gas reserves of NOCs are getting depleted. Further, till
the Reliance gas discovery in 2002, despite strong exploration
efforts, there had not been a major discovery in India since
the discovery of Neelam Oilfield in 1987 (over 15 years ago).
The gas discovery by Reliance is expected to change the
natural gas scenario in the country. It would also boost the
investors' confidence in investing in exploration in
deepwater areas. There is a very high likelihood of
discovering more significant finds in the region as the
discovery confirms this particular region had the
hydrocarbons developed during the history of earth. It has
been observed elsewhere that a major discovery is generally
followed by several more discoveries in that region. The new
discoveries are likely to be predominantly of gas because this
region is tectonically more ancient. Further, the RIL-ONGC-
BG consortium has re-estimated gas reserves in the Mid and
South Tapti fields at higher values and production from these
fields is expected to increase in the medium term. However,
the increased production (which is almost equivalent to the
current level of gas production from the private sector players
[around 12 per cent of the country's total production]) would
be insufficient to meet the strong demand for natural gas in
the country. On the other hand, many players have chalked
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Notes out plans to import LNG, which is expected to provide

__________________ additional supplies of natural gas in the country.
__________________
Capacity Utilization
__________________
__________________ The volume of gas transported by GAIL has been a function
of the gas supplied by ONGC and OIL and the capacity of its
__________________
pipelines. The total gas transported by GAIL recorded a
__________________ compounded annual growth rate (CAGR) of 5.5 per cent
__________________ during FY1997-FY2002 (Figure 6.1). The HBJ throughput
__________________ increased at a higher CAGR of 13.4 per cent during the same
period. The capacity utilization of the HBJ pipeline declined
__________________
in FY1998 after showing a utilization level of more than 100
__________________ per cent during the previous two years. This decline was
because of the higher capacity base in FY1998, as the capacity
of the HBJ pipeline was expanded to 33.4 MMSCMD from
the earlier 18.2 MMSCMD during the latter part of FY1998.
In FY1999, the total gas transported by GAIL was 57.8
MMSCMD (5.6 per cent higher than in FY1998). Of this, 27.1
MMSCMD was transported through the HBJ pipeline. This
represented a capacity utilization of 81 per cent. Similarly,
during FY2000, the total gas transported by GAIL was 60.3
MMSCMD (4.4 per cent higher than in FY1999). Of this, 31.1
MMSCMD was transported through the HBJ pipeline. This
represented a capacity utilization of 93.2 per cent. In FY2001,
the gas transported was 61.75 MMSCMD (2.4 per cent higher
than the previous year). Of this, 32.676 MMSCMD was
transported through the HBJ pipeline. In FY2002, the gas
transported was approximately 62 MMSCMD (0.4 per cent
higher than FY2001). GAIL has further proposed to double
its total gas handling capacity from the current level of 62
MMSCMD and plans to invest Rs. 40 billion in this project.
Figure 6.1 : Capacity Utilization - HBJ Pipeline

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Notes
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
Figure 6.2: Gas Pipeline Network in India
Gas Pipelines - An Overview

The existing gas pipeline infrastructure spans 6,269 km
(Figure 6.2). GAIL is the largest gas transmission and
marketing company in the country. GAIL handles
approximately 85% of the total amount of natural gas
transmitted by pipeline in India; it owns and operates over
4,500 km of pipeline, concentrated principally in
northwestern India, but spread over all the regions of the
country. The existing gas infrastructure of GAIL can support
the production and transportation of more than 100
MMSCMD of gas. GAIL's most prominent 2,700 km Hazira-
Bijaipur-Jagdishpur (HBJ) natural gas pipeline runs from
southern Gujarat to Uttar Pradash to Delhi handling a
capacity of 33.4 MMSCMD. The company has regional
pipeline networks in the areas of Mumbai, Gujarat,
Rajasthan, Andhra Pradesh, Tamil Nadu, Pondicherry,
Assam and Tripura. These pipeline networks are smaller and
vary in size from 4 km to 90 km in length.
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Notes Currently, the western offshore region is a major source of

__________________ gas in the country with a share of about 69 per cent in total
__________________ gas production. Gas produced from these fields is brought to
either Uran in Maharashtra or Hazira in Gujarat where it is
__________________
sweetened and further moved to various customers in
__________________
respective states. The gas at Hazira is also fed into the HBJ
__________________ pipeline network. GAIL markets the gas produced by ONGC/
__________________ OIL and Private/JV players owning medium-sized fields.
__________________ Other players involved in gas distribution are OIL (the State
__________________
of Assam) and Gujarat Gas (the State of Gujarat).
__________________ Gujarat State Petroleum Corporation (GSPC), a Gujarat State

__________________ Government owned company, has also entered the gas
transportation business and is setting up a Rs 32 billion, 2,500
km pipeline network for transportation of gas. Gujarat State
Petronet Ltd. (GSPL), a special purpose vehicle (SPV) floated
by GSPC, is executing this two-phase pipeline project. Phase
1 involves an investment of Rs 12 billion and covers a distance
of 525 km from Vadnagar in the north of Gujarat to Vapi in
the south. Phase II involves extending the network to
Saurashtra, Surendranagar, Rajkot and Jamnagar. The
length of this segment is 500-600 km and the investment
involves Rs 20 billion. Among other regional pipelines,
Assam Gas Company has a prominent pipeline network in
northeast India. In addition to its 250 km pipeline linking
Sibsagar with Marsharita in Assam, it has over 350 km of
branch pipelines in the region. After the discovery of gas
reserves in KG Basin in October 2002, Reliance is also having
a re-look on its proposed pipeline network. RIL plans to
acquire the right of usage to lay two separate gas pipelines
for (i) transporting the KG gas to Goa in the country's western
part and (ii) from Jamnagar to Cuttack in the east coast.
Besides this, GAIL has proposed a 7,890 km national gas grid

connecting various demand centers with the various supply
points for boosting gas trade in the country, apart from
improving security of supply. By virtue of its ownership of
around 4,500 km of natural gas pipelines, GAIL enjoys a
natural monopoly, as this infrastructure is unlikely to be
replicated. Further, by owning such infrastructure GAIL
occupies a unique position. With a rising customer base and
an expected rise in gas supply (from the LNG projects and
the private sector fields), GAIL may be expected to have a
disproportionately higher share of all new supplies.
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Gas Pipeline Policy Notes
__________________
Gas sector and gas transport in particular is developing
__________________
rapidly in India. With successful results from exploration
efforts under NELP rounds and huge finds in KG basin __________________
coupled with encouraging results from western coast as well __________________
as upcoming LNG terminals at Dahej and Hazira (also __________________
Dabhol), there is an urgent need to develop transmission __________________
lines connecting different states. Whereas, local distribution
__________________
system may get developed over a period of time with growth
of demand, transmission system needs to be taken up on top __________________
priority to enable various gas producers and LNG importers __________________
to reach market. With an aim to mote investment in gas __________________
pipelines and to provide inter-connectivity between regions,
consumers and producers, Government in September 2003,
proposed certain guidelines for laying natural gas pipelines
for the interim period till the Petroleum Regulatory Board
Bill is passed by the Parliament and is notified for
enforcement.
In June 2002, McKinsey & Co. had submitted draft

recommendations in a report titled 'Developing a Pipeline
Regulatory Regime for India'. Based on these
recommendations, the Ministry of Petroleum & Natural Gas
had issued a notification dated 20th November, 2002 laying
down guidelines for laying petroleum product pipelines.
These guidelines do not cover the laying of natural gas
pipelines. Based on various reports such as 'Regulatory
Framework for the gas industry in India' by National
Economic Research Associates (NERA), the report of
McKinsey & Co., etc. and discussions with GAIL and other
industry players, a draft pipeline policy has been formulated
for consideration.
It has been proposed that there will be three categories of

natural gas pipelines as follows:
Low Pressure pipelines: All pipelines developed for the

transportation of low-pressure gas produced from isolated
and marginal gas fields.
Local Distribution pipelines: Pipeline developed for the

transportation and local distribution of natural gas through
an integrated pipeline network to domestic, CNG,
commercial and small industrial consumers.
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Notes Transmission pipelines: All medium to high-pressure

__________________ transmission mains, other than low pressure pipelines and
__________________ local distribution pipelines, laid for transporting gas from
the landfall point/delivery point to any location within India.
__________________
__________________ For the first two categories above, any entity will have the
__________________ freedom to lay pipelines subject to statutory approvals.
However, for Transmission pipelines categorized at (iii)
__________________
above which will be high pressure bigger diameter long
__________________
distance pipelines, the Government will have the power to
__________________ nominate any company for laying such pipelines. Further,
__________________ all new pipelines will be on non-discriminatory open access
__________________ basis for booking of pipeline capacity as well as for any
available excess capacity. The transportation tariff for the
pipelines commissioned after the date of publication of the
notification in the official gazette will be subject to the control
orders or the regulations that may be issued by the
Government or the statutory authority in this behalf under
any law for the time being in force. Gas transmission will be
provided on the basis of unbundled services, i.e. separate
provision for transportation and gas supply services.
All gas pipelines will be built on common carrier principle

and their capacity will be expanded or an additional pipeline
laid if so desired by the regulator to meet the requirement
of new players. If the person owning the pipeline is unable
to expand it or take steps within a reasonable period to do
so, the regulator may get the expansion done through the
National Nodal Authority or in any other manner. The
pipelines will be used by all players on non-discriminatory
basis. Tariff for the transmission pipeline and/or for the
distribution pipelines would be approved by the regulator
so as to provide a reasonable rate of return as may be fixed
by the regulator. This tariff should be applied as a cap to
enable lower negotiated rates based on market prices. The
draft policy is under consideration and final policy is yet to
be announced.
Since pipelines create natural monopolies, a comprehensive

regulatory framework is required. The role of the regulatory
authority would include ensuring adherence to stipulated
safety and quality norms, ensuring that facilities are not
needlessly duplicated, and determining the tariff that is
attractive to investors and yet does not exploit consumers
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Existing Gas Pipeline Network Notes
__________________
The existing gas pipeline infrastructure spans 6,269 km.
__________________
GAIL is the largest gas transmission and marketing company
in the country. It owns and operates over 4,500 km of pipeline, __________________
concentrated principally in northwestern India, but spread __________________
over all the regions of the country. The existing gas __________________
infrastructure of GAIL can support the production and __________________
transportation of more than 100 MMSCMD of gas. GAIL's
__________________
most prominent 2,700 km Hazira-Bijaipur-Jagdishpur (HBJ)
natural gas pipeline runs from southern Gujarat to Uttar __________________
Pradash to Delhi handling a capacity of 33.4 MMSCMD. The __________________
company has regional pipeline networks in the areas of __________________
Mumbai, Gujarat, Rajasthan, Andhra Pradesh, Tamil Nadu,
Pondicherry, Assam and Tripura. These pipeline networks
are smaller and vary in size from 4 km to 90 km in length.
Gujarat State Petroleum Corporation (GSPC), a Gujarat

Government owned company, has also entered the gas
transportation business and is setting up a Rs 32 billion, 2,500
km pipeline network for transportation of gas. Gujarat State
Petronet Ltd. (GSPL), a special purpose vehicle (SPV) floated
by GSPC, is executing this two-phase pipeline project. Phase
1 involves an investment of Rs 12 billion and covers a distance
of 525 km from Vadnagar in the north of Gujarat to Vapi in
the south. Phase II involves extending the network to
Saurashtra, Surendranagar, Rajkot and Jamnagar. The
length of this segment is 500-600 km and the investment
involves Rs 20 billion. Among other regional pipelines,
Assam Gas Company has a prominent pipeline network in
northeast India. In addition to its 250 km pipeline linking
Sibsagar with Marsharita in Assam, it has over 350 km of
branch pipelines in the region.
Table 6.1 : Natural Gas Pipelines in India
Pipelines Owner Length (km)

Hazira-Bijaipur-Jagdishpur (HBJ) pipeline GAIL 2,700
KG Basin GAIL 700
Cauvery Basin GAIL 150
North East, Mumbai and Gujarat GAIL 950
North East OIL 100
Hazira Uran (Offshore) ONGC 200
Contd...
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Notes Bombay High (Heera) Uran (Offshore) ONGC 150

__________________ South Bassein Hazira (Offshore) ONGC 460
__________________ Gujarat Gas Grid GSPL 186
__________________ North East Assam Gas 600
__________________ Hazira-Ankleshwar GGCL 73

Total (km) 6,269
__________________
__________________
__________________
__________________
__________________
__________________
Figure 6.3 : HVJ Pipeline Network
Project Details
The Hazira-Vijaipur-Jagdishpur (HVJ) gas pipeline network,
the first cross country gas pipeline project, was laid to utilize
the vast resources of the natural gas in the country. The work
on HVJ gas transmission pipeline began in 1986 linking the
gas sourced from Basin fields landing at Hazira with the
fertilizer, power and industrial consumers in Gujarat,
Rajasthan, Madhya Pradesh and Uttar Pradesh. In 1987-88,
GAIL successfully commissioned 1,700 km long HVJ pipeline
system in 22 months, 14 months ahead of schedule. The HVJ
pipeline was dedicated to the nation in November 1988. The
HVJ pipeline was initially designed to transport 18.2
MMSCMD of natural gas. Under the Gas Rehabilitation and
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Expansion Project (GREP) in 1997-98, the capacity was Notes
expanded to 33.4 MMSCMD by provision of additional __________________
compression facilities and construction of a loop line of __________________
505 km from Vijaipur to Dadri. The total cost of expansion
__________________
was US$ 545 million and length of HVJ pipeline was
__________________
increased to 2,700 km. Now, it not only supplies gas to the
power and the fertilizer plants enroute but also to LPG plants, __________________
petrochemical complexes and city gas distribution networks. __________________
It supplies gas to city gas distribution network at Delhi, __________________
industrial area at Agra and Ferozabad and Mathura refinery __________________
under the Taj Trapezium Zone. The HVJ upgradation project
__________________
is underway wherein the network's capacity will be
augmented to cover Haryana and Delhi. __________________
The pipeline system consists of pipes of various sizes ranging

from 18" to 36" diameter. Six compressor stations have been
provided at required locations along the HVJ pipeline for
boosting up the pressure of gas to efficiently transport the
gas and meet the contractual pressure requirements of
different customers.
The gas transportation charges along the HVJ pipeline

system were fixed at Rs. 1,150 per thousand cubic meter (tcm)
with effect from October 1, 1997 based on the
recommendations of the Sankar Committee. The group of
ministers, represented by producer and user ministries
recommended an increase of Rs. 10 per tcm in July 2003.
The Union Cabinet is still to approve the revision of the
transportation charges to Rs. 1,160 per tcm.
HVJ Upgradation project

In September 2000, GAIL proposed to double the throughput
capacity of HVJ Pipeline from 33.4 MMSCMD to 64
MMSCMD in two phases. The work on the capacity expansion
under the first phase began in 2002 . Under this phase, GAIL
decided to lay a 610 km of Dahej- Vijaipur pipeline
connecting PLL's Dahej terminal to the HVJ pipeline to
transmit around 22 MMSCMD of R-LNG over and above the
existing HVJ capacity to various customers in the states of
Gujarat, Madhya Pradesh, Rajasthan, Uttar Pradesh,
Haryana and Delhi. The construction of the pipeline was
completed in 14 months against the earlier schedule of 33
months. GAIL successfully commissioned the pipeline in
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Notes March 2004. The total cost of this pipeline project was Rs.
__________________ 29.36 billion.
__________________
In the second phase, GAIL shall increase the pumping
__________________ capacity of the Dahej-Vijaipur pipeline project by adding
__________________ more compressors. The expansion also includes 139-km
__________________ pipeline to be laid from the HVJ at Thulendi to Phulpur in
Uttar Pradesh to increase the gas supply to the existing
__________________
customers and to target new customers in Uttar Pradesh.
__________________
Suez Tractebel has been appointed as the Project Management
__________________ Consultant. The pipeline will become operational by April
__________________ 2005. Besides, a 114-km pipeline from the HVJ at Dadri to
__________________ Panipat in Haryana is being built to service the IOC's Panipat
refinery and other new customers in Haryana. The draft
feasibility report of this pipeline has been completed and
Engineers India Ltd. has been appointed as the Project
Management Consultant. The second phase is expected to
be complete by 2005.
Regional Pipelines
Following the completion of the HBJ pipeline and its
successful commissioning, the Government of India
transferred to GAIL approximately 725 km of existing
pipelines that had been constructed and operated by ONGC.
Gas customers have also laid 320 km of pipeline themselves,
which are operated by the Company and the company laid
an additional 600 km of pipeline in different areas of India.
The regional pipelines vary in length from 0.5 to 75 km and
were generally installed to meet the needs of a single
customer or a group of customers.
The smaller pipeline networks of GAIL supply gas to

industries from offshore and onshore gas fields in the
Western, North-Eastern and Southern parts of the country
(Tables 6.2 and 6.3). The regional pipelines are in the areas
of Mumbai, Gujarat, Rajasthan Andhra Pradesh, Tamil Nadu,
Pondicherry, Assam and Tripura. These pipeline networks
are smaller and vary in size from 4km to 80/90 km in length;
and 4" to 18" - 24" in diameter - and account for the
transmission and distribution of the balance gas sales today.
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Table 6.2 : Offshore Pipelines Notes
__________________
Capacity (MMSCMD)
From To Size __________________
Bombay High Uran 26 12.5 __________________

__________________
Heera Uran 26 16
__________________
Bassein Hazira 36/42 22 / 30
__________________
__________________
Table 6.3 : Existing Pipelines in Gujarat __________________
Length (Kms) __________________

Pipeline System Including Spurs
__________________
North Gujarat 175
South Gujarat 460
Ex- Uran Terminal (Maharashtra) 107
Krishna Godavari Basin (AP) 189
Cauvery Basin (TN) 66
Assam - Arakan Basin (Assam) 174
Arakan Basin (Tripura) 3
Jaisalmer Basin (Rajasthan) 65
Proposed Gas Pipeline Network

Gas sector and gas transport in particular is developing
rapidly in India. With successful results from exploration
efforts under NELP rounds and huge finds in KG basin
coupled with encouraging results from western coast as well
as upcoming LNG terminals at Dahej and Hazira (also
Dabhol), there is an urgent need to develop transmission
lines connecting different states. Whereas, local distribution
system may get developed over a period of time with growth
of demand, transmission system needs to be taken up on top
priority to enable various gas producers and LNG importers
to reach market.
Accordingly, GAIL has proposed a 7,890 km national gas grid

connecting various demand centers with the various supply
points for boosting gas trade in the country, apart from
improving security of supply. Map below gives the details of
Phase I of National Gas Grid Project.
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Notes Besides GAIL's National Gas Grid, Gujarat State Petroleum

__________________ Corporation (GSPC), a Gujarat Government owned company,
__________________ has also entered the gas transportation business and is setting
__________________
up a Rs 32 billion, 2,500 km pipeline network for
transportation of gas. Gujarat State Petronet Ltd. (GSPL), a
__________________
special purpose vehicle (SPV) floated by GSPC, is executing
__________________ this two-phase pipeline project. Phase 1 involves an
__________________ investment of Rs 12 billion and covers a distance of 525 km
__________________ from Vadnagar in the north of Gujarat to Vapi in the south.
__________________ Phase II involves extending the network to Saurashtra,
Surendranagar, Rajkot and Jamnagar. The length of this
__________________
segment is 500-600 km and the investment involves Rs 20
__________________
billion. Among other regional pipelines, Assam Gas
Company has a prominent pipeline network in northeast
India. In addition to its 250 km pipeline linking Sibsagar with
Marsharita in Assam, it has over 350 km of branch pipelines
in the region.
In addition to the above proposed pipeline network, Reliance

is also having a re-look on its proposed pipeline network
after the discovery of gas reserves in KG Basin in October
2002. It plans to acquire the right of usage to lay two separate
gas pipelines for (i) transporting the KG gas to Goa in the
country's western part and (ii) from Jamnagar to Cuttack in
the east coast
Distribution Network (City Gas Project)

City gas projects are the other offshoots of increasing usage
of natural Gas and its growing role in the energy fuel basket.
Currently, 3 cities (Delhi, Mumbai, Agartala) have Gas
supply networks and 11 more city gas projects have been
envisaged.
CGD networks supply compressed natural gas (CNG) to

transport sector and piped natural gas (PNG) to domestic
and industrial consumers. CGD networks have been
developed in Mumbai, Delhi, Surat, Ankleshwar, Vadodara
and Bharuch. CGD networks are being developed in cities
of Ahmedabad, Vadodara, Kanpur, Pune, Lucknow,
Faridabad, Noida, Gurgoan and many others.
GAIL conceptualized the idea of a national gas grid for

connecting various gas supply sources to various existing and
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potential markets in the country. It planned to lay 7900 km Notes
of pipeline network involving an investment of Rs 200 billion. __________________
__________________
Adani Group has been recently granted rights to set up
natural gas distribution network at Ahmedabad and __________________
Vadodara. It has formed a separate company Gujarat Adani __________________
Energy Limited (GAEL) to implement the project. Project __________________
aims to service the natural gas demand of industrial, __________________
commercial, domestic and transport sector in these two cities
__________________
of the state.
__________________
Natural gas because of its numerous advantages has become __________________
the most preferred fuel for the customers. Because of its
__________________
scarce supply and limited availability of the pipeline
infrastructure, gas distribution networks in Gujarat have
been confined to cities in south Gujarat region with the
successes in the Exploration & Production activities in
Gujarat and efforts of Gujarat State Petronet Limited (GSPL)
it is now becoming increasingly possible to set up gas
distribution activities in various cities of Gujarat. State
Government is also creating an enabling environment for the
private sector participation.
Ahmedabad & Vadodara are two of the most populated and

industrialised cities of Gujarat. With a combined population
of more than 7.50 million, these two cities represent a large
market for natural gas. Initial combined demand of these
two cities is estimated to be approximately 1.50 million
standard cubic meters per day (MMSCMD). As has been
experienced elsewhere in the country, the demand for
natural gas grows rapidly with its availability and hence the
demand in these cities is likely to increase manifolds in the
next few years.
Project aims to cover all the major demand centers like: Savli,
Nandesri, Gorwa, Makarpura, Por, Waghodia in Vadodara
and Vatwa, Narol, Naroda, Odhav, Rakhial in Ahmedabad.
The proposed network shall also cover large parts of area
under respective Municipal and Urban Development
authorities in these two cities to cater to the gas demand in
domestic and commercial segment. Project shall also include
setting up of CNG infrastructure to service the fuel needs of
the transport sector.
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Notes Under the existing policy, Government authorization or

__________________ license is not required for setting up CGD networks. Any
__________________ entity having access to the source of supply of gas can set up
CGD project after obtaining 'No Objection Certificate' from
__________________
the local Municipal body. Through its April 5, 2002 order,
__________________
the Supreme Court issued a directive to introduce CNG in
__________________ 11 Indian cities in order to control the pollution levels in
__________________ these cities. These include Agra, Lucknow, Jharia, Kanpur,
__________________ Varanasi, Faridabad, Patna, Jodhpur and Pune, apart from
__________________
Delhi and Mumbai. This gave a boost to the CGD activities
in India. In December 2004, there were 228 CNG stations in
__________________
the country. The table 6.4 below give details of these CNG
__________________ stations.
Table 6.4 : CNG Stations in India
S.No. Name of the city No. of CNG Stations
1 Mumbai 93
2 Delhi 125
3 Vadodara 2
4 Surat 6
5 Ankleshwar 1
6 Bharuch 1
Total 228
The existing players are expanding their network to nearby
cities and towns. While IGL plans to focus on the National
Capital Region, MGL plans to expand itself in Pune and
Thane. GAIL, BPCL, HPCL, IOC and private sector
companies such as Reliance, Essar, etc. are also endeavouring
to develop the CGD networks in various other cities. In
January 2004, the oil ministry approved the proposal to
allocate additional 1.7 MMscmd of gas towards the
implementation of CGD networks in the six cities of Kanpur
(0.1 MMSCMD), Pune (0.4 MMSCMD), Faridabad, Noida and
Gurgaon townships in NCR region (0.7 MMSCMD), Thane
and New Mumbai suburbs of Mumbai (0.5 MMSCMD).
CNG
Compressed Natural Gas (CNG) has been widely used in
vehicles since the 1930s, in countries that include Argentina,
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Russia and Italy. There are more than 1,050,000 vehicles Notes
around the world, which are powered by CNG fuel. It is __________________
gaining increasing acceptance, particularly for city transport __________________
vehicles such as taxis, buses and delivery trucks due to its
__________________
relative superiority over other conventional fuels.
__________________
CNG is a relatively clean fuel with lower emission levels of __________________
SO2, NO2 and SPM. It is, therefore, being promoted by the
__________________
Government of India as a fuel for the transport sector vide
__________________
sales tax exemption and a lower custom duty of 5 per cent on
imported CNG kits as against a peak rate of 25 per cent. __________________
CNG as an automobile fuel improves engine efficiency. The __________________
running cost of CNG is lower compared to diesel and __________________
gasoline. The maintenance cost is also low due to better fuel
quality. The energy content per kg of CNG is very similar to
that of petroleum based fuels, but it has a lower energy
content per unit of volume. The excellent knock resisting
property of CNG allows for use of a higher compression ratio
resulting in an increased power output and greater fuel
economy when compared to petrol. CNG can be used in
engines with a compression ratio as high as 12:1 compared
to normal gasoline (7.5:1 to 10:1). At this high compression
ratio, natural gas-fuelled engines have higher thermal
efficiencies than those fuelled by gasoline. The fuel efficiency
of CNG driven engines is about 10-20% better than diesel
engines.
In the 80s, GAIL initiated techno-economic feasibility

studies for gas distribution in the metro cities of Mumbai
and Delhi through Sofragaz & British Gas respectively. Based
on the encouraging recommendations of these studies, the
Government of India approved gas allocation for Mumbai and
Delhi. Mahanagar Gas Limited (MGL), a Joint Venture
company of GAIL, British Gas and the Government of
Maharashtra was incorporated in May '95 for supply and
distribution of natural gas to domestic, commercial, small
industrial consumers and Compressed Natural Gas (CNG)
to vehicular consumers in Mumbai through its integrated
gas pipeline network. Similarly Indraprastha Gas Limited
(IGL), a JVC of GAIL, Bharat Petroleum Corporation Limited
(BPCL) and Government of National Capital Territory (NCT)
of Delhi was incorporated in December 1998 for developing
a distribution network for the residential, transport and
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Notes commercial consumers in Delhi. MGL has laid network of

__________________ over 1450 kms of medium pressure and lower pressure PE
__________________ pipelines & 128 kms of High Pressure steel network to cater
to over 5 lakhs potential consumers in the city.
__________________
__________________ Besides IGL and MGL, GAIL is also supplying gas to the
__________________ polluting industries, including public transport, in Agra. It
further plans to supply CNG to urban region of UP such as
__________________
Lucknow, Kanpur and Ferozabad. GAIL has also floated a
__________________
JV with HPCL - Bhagyanagar Gas - for supply of CNG in
__________________ Vijayawada in Andhra Pradesh. Similarly, in Agartala, GAIL
__________________ has joined hands with Tripura Natural Gas Company for
__________________ supply of CNG. Likewise, in addition to being a promoter in
IGL, BPCL is attempting to enter the business in Pune and
Indore. BPCL has completed a pre-feasibility study in Pune
and has applied to MoP&NG for clearance.
In Gujarat, Gujarat Gas Company Limited (GGCL), promoted

by British Gas, has developed the gas distribution network
in Surat, Bharuch & Ankleshwar. In Baroda (Vadodara), the
distribution network has been developed by Municipal
Corporation of Vadodara. Gujarat's most profitable state
venture, GSPCL signed an MoU with GGCL for the
development of CNG business in the Surat-Ankleshwar belt
in February 2001. It has signed an MoU with HPCL to set up
a chain of 246 CNG dispensing stations along the highways
between Hazira and Mehsana by the 2004 end. The Gujarat
Government has awarded six circles to three companies:
Gujarat Adani for Ahmedabad and Vadodra, GAIL for
Surendranagar and Rakjot and BPCL for Mehsana and
Gandhinagar. GAEL shall target all the user segments -
industrial, commercial and domestic.
Table 6.5 : CNG Network Across The Nation
Company Number of CNG stations

IGL 117
MGL 57
GGCL 3
GSPCL 1
GAIL-Vadodara 2
Total 180
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The National Auto Fuel Policy based on the norms endorsed Notes
by the Supreme Court has been cleared by the Cabinet. It __________________
makes the switch to CNG mandatory for eleven most polluted __________________
cities, including the three metros (plus Ahmedabad,
__________________
Hyderabad, Surat, Pune, Kanpur, Agra, Sholapur and
__________________
Bangalore) by 2005. The review of the policy in 2006 would
see if the rest of the country would get clean fuel and vehicles __________________
by 2010. Since margins in gas retailing are attractive, __________________
especially with the right mix of domestic and commercial __________________
customers, the city gas distribution business has lots in store __________________
for both state and private players.
__________________
CNG Specification as an Auto Fuel __________________
Compressed Natural Gas (CNG) is a transport fuel and is

natural gas compressed to a pressure of 200 bar plus.
Compressors are required to be used at CNG stations for
compression of gas from the pipeline network for storage in
cascades as well as dispensing into the transport vehicles.
As per Auto Fuel Policy of Government of India, the following

CNG specifications have been recommended (Table 6.6):
Table 6.6 : CNG Specifications
Constituent Value Tolerance

Hydrocarbons (% of Total Organic
Carbon present)
Methane 80 Minimum
Ethane 10 Maximum
C3 and Higher HC 5 Maximum
C6 and Higher HC 1 Maximum
Total Unsaturated HC 1 Maximum
Other Species (mole%)
Hydrogen 0.1 Maximum
Carbon Monoxide 0.1 Maximum
Other Requirements
Free from liquids over the entire range of temperatures and pressures
encountered in the Engine and fuel System.
Free from solid particulate matter
Piped Natural Gas (PNG) is the natural gas supplied through

a network pipeline to the various categories of customers
such as domestic users who use gas for cooking and other
domestic appliances, commercial customers who use gas for
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Notes cooking, water-heating and air-conditioners and industrial

__________________ customers who use gas as industrial fuel. PNG is supplied to
__________________ customers at low to medium pressures between 4 bars to 25
milibars.
__________________
__________________
Benefits and Limitations of CNG
__________________
__________________ Benefits of CNG
__________________
n Very easy on the engine, giving longer service life and
__________________ lower maintenance costs.
__________________
n Established clean Fuel.
__________________
n Regulations already in place.
n Large upcoming infrastructure base.
n Potential for ultra low emission.
n Safest alternative fuel.
n Dry gaseous fuel does not dilute the lubricating oil, thus
saving on oil filters and oil chargers.
n Freedom from adulteration.
Limitations of CNG
n Driving complaints due to loss of power with CNG.
Dynamometer tests indicate that CNG-fuelled vehicles
have 10-15% lower power output than petrol engines.
n Increased exhaust-valve wear in CNG-operated vehicles
are anticipated due to the drying effect of the gaseous
fuel.
n Distribution.
n Economy.
n Dead weight.
n Unfair competition from illegal use of LPG and other
fuels.
n Prime among its disadvantages is the loss of luggage
space.
n Inability to make an impression on the common man.
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Emissions from CNG Vehicles viz-a-viz Other Vehicles Notes
__________________
Natural gas is the cleanest burning alternative fuel. Exhaust
__________________
emissions from CNG vehicles are much lower than those from
petrol and diesel powered vehicles. For instance, CNG __________________
emissions of carbon monoxide are approximately 70% lower, __________________
non-methane organic gas emissions are 89% lower, and oxides __________________
of nitrogen emissions are 87% lower. In addition to these __________________
reductions in pollutants, CNG also emits significantly lower
__________________
amounts of greenhouse gases and toxins than vehicles using
petrol and diesel. __________________
__________________
Dedicated CNG vehicles produce little or no evaporative
__________________
emissions during fueling and use. For petrol vehicles,
evaporative and fueling emissions account for at least 50%
of a vehicle's total hydrocarbon emissions. Dedicated CNG
vehicles can also reduce carbon- dioxide exhaust emissions
by almost 20%. The table 6.5 below shows comparative
emissions from vehicles using CNG as fuel and vehicles using
other conventional fuels.
Table 6.5 : Pollution Reduction in CNG Fuelled Vehicles
A. Passenger Car (Petrol)
(gram/km)
Vehicle Pollutant Petrol CNG % Reduction

Maruti Omni CO 19.79 0.55 97
HC 1.14 1.02 11
Maruti Gypsy CO 4.94 0.59 88
HC 1.86 1.42 24
Premier Padmini CO 18.38 0.94 95
HC 2.83 2.03 28
Premier 118 NE CO 15.6 2.04 87
HC 2.57 1.92 25
Ambassador CO 52.16 0.78 98
HC 6.37 4.33 32
Source: Emission tests conducted by GAIL.

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Notes B. Auto Rickshaws (Petrol)

__________________
(gram/km)
__________________
Pollutant Petrol CNG % Reduction
__________________
CO 3.26 3.99/1.26* 63.19*
__________________ Bajaj Three Wheeler HC 5.48 1.57 71.35
__________________ CO2 47.44 27.6 41.82
__________________ NOx 0.25 0.2 20.00
__________________
C. Diesel Buses
__________________
__________________ Pollutant Diesel CNG % Reduction
__________________ CO 1.68 1.4 16.67
Ashok Leyland
HC 4.5 3.77 19.37
NOx 13.73 8.0 41.77
Major Causes of Vehicular Pollution

70% of total air pollution comes from vehicles due to:
n The traffic conditions.
n The condition of vehicles.
n Fuel used in vehicles.
Dispensing Facilities
CNG Stations
Mother stations are outlets to the CNG pipeline network
running (existing/ proposed) throughout the length & breadth
in city / high way. These stations also provide cascade filling
facility, used to fill gas in small cascades and transmitted to
daughter dtations.
CNG vehicle storage cylinders need to be filled at a pressure

of 200 bar. "On-Line stations" are equipped with a
compressor, which compresses low-pressure pipeline gas to
the pressure of 250 bar for dispensing CNG to the vehicle
cylinder. Online stations are the same as Mother Stations
except that they do not have the cascade filling facility.
Daughter stations are small stations catering to the needs

of even those areas where Pipeline cannot reach.
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CNG is supplied to consumers mainly through the existing Notes
CNG stations. The dispensing units at the stations are __________________
supplied through storage cascade (also called "Mother- __________________
Stations") in rack-mounted-cascades to the retail outlets
__________________
called the "Daughter-Stations". The "on-board" cylinder in
__________________
the CNG driven vehicle is refueled from the dispensing unit
under pressure, in a manner similar to petrol filling. __________________
__________________
The vehicle cylinder is not taken out or replaced for refueling.
__________________
CNG dispensing operates on the principle of equalizing
pressure between the storage cascade and vehicle "on-board" __________________
cylinder. CNG is sold on retail from the dispenser in Kg. __________________
Units using direct mass flow meters while refueling. __________________
There is reduction in storage pressure with each successive

filling at a CNG retail outlet not connected to a gas pipeline.
Once station pressure drops, the refueling time increases,
while the quantity of CNG dispensed to the vehicle decreases.
Normally a car with one "on-board" cylinder is refueled in 3
minutes when cascade storage pressure is full.
Safety Aspects
Safety guidelines for CNG users
Immediately check cylinder/kit safety certificate.
n After the kit fitment, the workshop must issue a safety

certificate that the conversion kit has been fitted in safe
and proper manner.
n Certificate issued by the dealer should have the details

of Cylinder Make & No. and Re-testing Date.
All CNG users will need to carry their fitment certificate for
filling CNG.
n CNG Company will check the kit safety certificate before

filling CNG , every time as a safety measure.
Use only approved CNG kits.
n Use only CNG kits approved by Automobile Research

Association of India (ARAI) Pune, Vehicle Research &
Development Establishment (VRDE), Ahmednagar or
India Institute of Petroleum (IIP), Dehradun.
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Notes n Install your CNG kit at a workshop authorized by the

__________________ kit supplier or manufacturer.
__________________ n Install CNG cylinders approved only by Chief Controller
__________________ of Explosives.
__________________ n CNG cylinders are required to be tested and certified
__________________ for use after every five years.
__________________
Do not try to source the kit components separately.
__________________
n Do not make the CNG kit yourself. Non-compatibility
__________________
of components can be unsafe.
__________________
n Usage of spurious cylinders is an offence.
__________________
n Ensure CNG conversion is authorized by the Regional
Transport Authority.
Natural Gas is available in abundance worldwide and is

expected to last for several hundred years. Natural Gas,
worldwide, is an established clean, green fuel for domestic
and commercial applications. It is predominantly being used
as a versatile fuel in most of the major cities catering to
domestic and commercial applications as cooking fuel, for
water heating, space heating, air conditioning, etc..
How safe is CNG as a vehicle fuel?

From health and safety points of view, CNG is as good as, or
even better than petrol and other alternative fuels. The
following properties make it a desirable fuel:
n CNG is lighter than air. In the event of a leak, it will
rise and disperse in the atmosphere and not form
puddles (as in petrol) nor will it spread (as in LPG).
n The ignition temperature of Natural Gas is much higher
than petrol making it more difficult to ignite.
n A high gas concentration in the air is needed to ignite
CNG, not easy to achieve even in the event of a leak.
Natural gas will not burn when its concentration in air
is below 5% or above 15%.
Properties which make CNG a desirable fuel

Natural Gas is:
n Non-toxic and cannot be accidentally ingested.
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n Non-corrosive and non-carcinogenic (totally free from Notes
cancer inducing agents). __________________
n Will not contaminate the ground water like liquid fuels. __________________
__________________
The CNG cylinders have been specially manufactured for use
__________________
in vehicles. They are made of a special steel alloy and are
entirely of a single piece. There are no welded joints in the __________________
cylinder. Moreover cylinders have been provided with burst __________________
discs so that in case of inadvertent high-pressure filling or __________________
fire, this burst disc is ruptured and no excessive pressure __________________
beyond specified level remains inside the cylinder. In the
__________________
luggage section of the car, CNG fittings and the cylinder valve
are enveloped inside a vapour bag, so that if a leak occurs, __________________
gas will pass through the bag to outside the vehicle. This
reduces the possibility of gas finding its way inside the car.
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UNIT 7 Gas Pricing 121
Unit 7 Notes
__________________
__________________
Gas Pricing __________________
__________________
__________________
Objectives
__________________
__________________
y Concept of Gas Pool Account.
__________________
y Revisiting the Gas-Pricing Proposal.
__________________
y Outline of Gas Contract & its features.
__________________
Natural Gas Prices

Post December 1995, the consumer price for non-North East
places was fixed by the Government at Rs 1850 per tcm
(exclusive of royalty at the rate of 10% and class tax varying
from 0 to 19%) for a calorific value of 9000 kilo calories/
MMSCMD. The corresponding figure for Northeast India was
Rs 1000 per tcm with a provision for further discounts. The
subsidy in North East India was given essentially because
the law and order situation in the region was not conducive
to industrial activity and a significant amount of gas was
being flared up. In January 1995, the Government appointed
a committee under the chairmanship of Mr. T.L. Shankar to
review the pricing of natural gas. The present mechanism of
gas pricing is largely based on the recommendations of T. L.
Sankar committee and was put into effect from October 1,
1997. The gas pricing order provided for linkage of consumer
price of natural gas to an international basket of fuel oils
that is determined and fixed quarterly. In 1998-99, the price
linkage was 65% of the international price of basket to
internationally traded fuel oils. In 1999-2000, the price
linkage was increased to 75%. In 2000-01, the linkage
remained at 75%. To curb any major fluctuation in prices,
the Government fixed a price band of Rs 2150 per tcm as the
lower limit and Rs 2850 per tcm as the ceiling price for gas
having a calorific content of 10000 kcal/MMSCMD. In
Northeast region, the Government fixed consumer price
band of Rs 1200 per MMSCMD as the lower limit and Rs
1700 per MMSCMD as the upper limit for gas having a
calorific content of 10000 kcal/MMSCMD.
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Notes Table 7.1 : Natural Gas Prices

__________________
(Rs/tcm*)
__________________
Price to Producer 1500
__________________
Prices to Consumer$ North-East# Other Places@
__________________
1992 1000 1550
__________________ 1993 1000 1650
__________________ 1994 1000 1750
__________________ 1995 1000 1850
__________________ Transportation charges along
Hazira-Vijaipur-Jagdishpur 850
__________________
pipeline
__________________
* tcm means thousand cubic metres
$ Exclusive of royalty @10% and sales taxes (varying from 0 to 19%)
# Further provision of giving discount up to Rs. 400 per '000 cubic metre on a case
to case basis
@ 15% discount allowed for interruptible supplies and for supplies from developing
fields.
Source: Ministry of Petroleum & Natural Gas
Apart from National Oil Companies (NOCs) viz. ONGC and

OIL, undertaking exploration and production activities in
the country, there are other private sector companies like
BG India, Reliance Industries Ltd., Cairn Energy Ltd., Ravva
Oil which are producing and supplying gas from gas fields
by forming joint ventures. Currently, there are four joint
ventures in the country from which gas is being supplied.
These are Ravva, Tapti, Panna-Mukta and Ravva Satellite
JVs. GAIL has been selling gas purchased from Ravva
Satellite field at market driven price which is around USD
3.3/MMBtu or Rs 5910/tcm for 10000 kcal/MMSCMD with
effect from April 1, 2004. Gas from Ravva, Tapti and Panna-
Mukta JVs is being bought by GAIL at a price higher than
the consumer price and is being sold at consumer price only.
The difference between the cost of higher purchase from JVs
is recovered from the consumer price recovered from ONGC.
A sum of Rs 2.5 billion per annum towards the Gas Pool
Account is also recovered from consumer price of ONGC.
After reducing these two elements, the resultant is producer
price for NOCs from their domestic production ("Net-back
Producer Price"). NOCs are allowed to market gas from
blocks awarded under NELP at market-determined prices.
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Notes
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
__________________
Figure 7.1: Graphic representation of Natural gas prices
__________________
from 1998 to 2004
The Gas Pricing Order issued in 1997 was effective for gas
prices up to March 31, 2000. However, the Government
decided to continue with the above mechanism.
R-LNG Pricing
Import of natural gas into the country in the form of LNG
commenced in April 2004 with the commissioning of Petronet
LNG Ltd.'s Dahej LNG Terminal. The LNG for Dahej terminal
is sourced from RasGas of Qatar. The negotiated price as
per the gas supply contract Rs 6831/tcm at 9880 kcal within
Gujarat and Rs 7206/tcm at 9880 kcal outside Gujarat. The
price is exclusive of local sales tax but inclusive of
transmission charges of Rs 500/MMSCMD within Gujarat and
Rs 652/MMSCMD outside Gujarat.
Gas Pool Account

In 1992, the Government established the Gas Pool Account
in order to encourage the development of the gas industry
in India and to compensate the companies involved in the
exploration, development and marketing of gas for the low
margins on the development and sale of gas at prices fixed
by oil ministry. The landfall price and producer price is
credited to the gas pool account. GAIL maintains the Gas
Pool Account on behalf of the Government.
Under the current pricing mechanism, GAIL collects Rs. 2.5
billion every year from natural gas consumers on behalf of
the gas pool account. This sum is used for the following
purposes:
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Notes i. Payment of higher international gas prices for the new

__________________ joint-venture companies;
__________________
ii. Compensation to Oil India Limited (OIL) for subsidizing
__________________
prices in the North-East;
__________________
__________________ iii. Compensation to GAIL/OIL for increases in operating
cost; and
__________________
__________________ iv. Exploration and development of smaller fields.
__________________
The balance is transferred to the Central Exchequer.
__________________
__________________ Revised Gas Pricing Proposal
The oil ministry redrafted the proposal of gas pricing that
was recommended by group of ministers in July 2003. The
new proposal states that, the market price of gas should be
linked to standard gas specifications of quality and quantity
as in the case of JV gas, with suitable discounts in case of
deviation and the price of R-LNG to act as the ceiling. It also
proposes that HVJ transportation tariff should be increased
on an adhoc basis by Rs.10/MMSCMD as recommended by
GOM, till a decision is taken by the oil ministry in this regard
based on the report of the Tariff Commission. In addition,
GAIL should be allowed to charge Rs 45/MMSCMD on
account of inflation from consumers directly instead of
charging it from the Gas Pool Account. The new pricing
proposal is as follows:
i. As per the recommendations of GOM, the determination

of APM price of gas, based on the production cost for
ONGC and OIL, will be referred to the Tariff
Commission. The issue of the transportation tariff for
the HVJ and Dahej-Vijaipur Pipeline (DVPL) has
already been referred to the Tariff Commission. The
Commission will be asked to submit its report within a
period of 6 months. The decision of the Government
based on the Tariff Commission's report will continue
till a regulatory mechanism is put in place. A Bill to set
up the Petroleum & Natural Gas Regulatory Board has
been prepared and will be brought before the Cabinet
very shortly. Once the regulatory body comes into being,
market regulation for ONGC/OIL gas will be done by
the regulator till full deregulation is achieved.
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ii. As recommended by GOM, till the Tariff Commission Notes
submits its recommendations and a decision is taken __________________
thereon, the consumer price of natural gas for the __________________
fertilizer sector will be increased from Rs.2850/ __________________
MMSCMD to a fixed price of Rs.3200/MMSCMD on a __________________
provisional basis, without any linkage to FO prices.
__________________
Further, for the power sector, a marginal increase in
__________________
the consumer price to Rs.3600/MMSCMD is proposed
__________________
keeping in view the fact that the GOM recommendations
are more than a year old and Government does not bear __________________
the subsidy directly, of the power utilities. This price __________________

regime will apply only to units in the fertilizer and power __________________
sectors against their existing allocations. It may be noted
here that, in accordance with 100% parity with
international price of a basket of fuel oils, the natural
gas prices today would be in the range of Rs.8140/
MMSCMD and thus there is still a large subsidy on APM
gas for these two sectors. The additional gas for new
units and capacity expansions in the fertilizer and power
sectors will be at market prices. The price of gas will
have a calorific value linkage of 10000 kcal/MMSCMD.
The market price of gas will be linked to standard gas
specifications of quality and quantity as in the case of
JV gas with suitable discounts in case of deviation and
the price of R-LNG will be the ceiling.
iii. The price of gas for the North Eastern region will be
pegged at 60% of the revised price for general consumers.
Thus, the consumer price for the North East region will
be Rs 1920/MMSCMD. The difference between the
producer price and the consumer price in the Northeast
region will be reimbursed to OIL from the North-East
Gas Subsidy Account, as is being done under the existing
arrangement from Gas Pool Account. For calculating
compensation to OIL, producer prices of OIL and ONGC
will be treated at par. Although ONGC also produces
2.5 MMSCMD of gas in the Northeast, the difference
between the producer price and consumer price is
reimbursed to OIL alone, since ONGC is the sole
contributor to the Pool Account. This is a transitional
arrangement. It is proposed that, the cost of production
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Notes of OIL and ONGC in the Northeast be examined by the

__________________ Tariff Commission and the difference between the
__________________ producer price and the consumer price be directly
__________________ subsidized through an appropriate budgetary provision
__________________ from the next year.
__________________ iv. Gas produced by Joint Ventures will be sold at market-
__________________ determined prices. If the parties mutually agree, GAIL
__________________ will procure the JV gas within the price ceiling foreseen
__________________ under the Production Sharing Contracts (PSCs)
__________________
governing the JVs, and supply the same to end
consumers. Otherwise, the JVs may be asked to market
__________________
gas themselves by first offering gas to the existing
consumers.
v. The production of ONGC's APM gas is expected to go

down from the current level of 65 MMSCMD to about 35
MMSCMD by the year 2010-11. Against this dwindling
availability of APM gas, the in-place allocations to the
power and fertilizer sectors amount to 71 MMSCMD (of
which 28 MMSCMD is along HVJ). Therefore, it is
proposed that Ex-Hazira and along HVJ, all available
APM gas would be diverted to meet only the contracted
gas supplies to units in the power and fertilizer sectors
against their existing allocations as well as specific end-
users committed under court orders. The private units
and public sector units in the fertilizer sector will be
treated on par in matters of gas allocation and pricing.
The price of gas for shrinkage due to extraction of C2,
C3 and C4 fractions will be market determined. The
transport sector and Agra-Ferozabad small industries
and other small-scale industries having allocations upto
0.05 MMSCMD will be supplied gas at Rs.3600/
MMSCMD and this will be progressively increased to
reflect market price. The Supreme Court will be
informed about this.
vi. Apart from HVJ system, there are other regional supply
networks in the Uran region in Maharashtra, KG Basin
in Andhra Pradesh, Cauvery Basin in Tamil Nadu and
local networks in the Northeast. These systems are not
interlinked to each other. The option of supplying R-
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LNG is currently available only on HVJ system. Notes
Therefore, in other regions, GAIL will be required to __________________
continue, supply gas to other consumers also along with __________________
power and fertilizer consumers till alternative gas
__________________
supply option becomes available. However, the gas
__________________
supply to these consumers other than power and
fertilizer will be at the market price. __________________
__________________
vii. The existing gas supply contracts between GAIL and
__________________
Power/Fertilizer consumers will in due course be
reworked to reflect ONGC's commitment to supply gas __________________
by having 'take or pay' and matching 'supply or pay' __________________

provisions in the gas supply arrangement between __________________
ONGC and GAIL, back to back with 'take or pay' and
'supply or pay' provisions in the contracts between GAIL
and consumers.
viii. Any additional gas as well as future production of gas

from new fields to be developed in future by ONGC/OIL
shall be sold at market-related price in context of NELP
provisions.
ix. The Gas Pool Account will be rechristened as the

Northeast Gas Subsidy Account and will be limited to
Rs 1.5 billion per annum.
x. As per the pricing order of September 1997, GAIL has

been allowed 1% increase in the HVJ transportation
tariff for every 10% increase in the All India Consumer
Price Index. This amount was being reimbursed to GAIL
from Gas Pool Account. Now that it has been proposed
to limit the Gas Pool Account only for meeting the North-
East gas subsidy requirement, it is proposed that the
amount on account of inflation may be charged from the
consumers directly till the Government takes a decision
regarding the transportation tariff based on the
recommendations of Tariff Commission. At present this
amount is Rs 45/MMSCMD.
xi. The mechanism of the Gas Linkage Committee for

making gas allocations may be done away with.
The cabinet note was prepared on the new gas pricing

proposal. The cabinet considered the proposal and decided
to refer it to Group of Ministers for further consultation.
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Notes CNG and PNG Prices

__________________
Table 7.2: CNG Prices (As On December 15, 2004)
__________________
__________________ Delhi Rs. 16.88/kg
__________________ Mumbai Rs. 19.71/kg
__________________ Vadodara Rs. 18.25/kg
__________________ Surat Rs. 20.24/kg
__________________ Table 7.3 :Companywise PNG Prices

__________________ (As on September 1, 2004)
__________________
Indraprastha
__________________ Consumers Category Mahanagar Gas
Gas
PNG for Domestic Rs 11.45 per
Rs 11.53 per cubic metre
Consumers cubic metre
PNG for Large
Rs 18.35 per
Commercial Rs 10.16 per cubic metre
cubic metre
Consumers
PNG for Medium
Rs 11.65 per
cubic metre
Consumers
PNG for Small
Rs 16.50 per
cubic metre
Consumers
Table 7.4 : CNG Prices viz-a-viz other fuels (As on December
15, 2004)
Auto Rickshaw Car Bus
CNG (Rs/km.) 0.48 0.80 4.12
Petrol (Rs/km.) 1.51 2.52 -
Diesel (Rs/km.) - - 7.51
Auto LPG (Rs/km.) 1.16 1.94 -
Table 7.5 : Break-up of CNG Pricing

Component Rs
Basic price 5.41
Excise 16%= 0.865
Sales Tax 0*
Fixed Cost + Variable Cost to IGL 10.56 (approx)
Total price (As disbursed from IGL) 16.83
* CNG is exempted from any sales tax

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Table 7.6 : CNG and PNG Prices in 2003-04 Notes
__________________
Indraprastha
Mahanagar Gas Gujarat Gas __________________
Gas
Pump price CNG for __________________
Rs. 16.83 per kg Rs. 19.71 per kg Rs. 20.34 per kg
automobiles
__________________
PNG for Domestic Rs. 11.55 per Rs. 9.94 per cubic __________________
Note
Consumption cubic metre metre
__________________
PNG for Large Rs. 12.90 per
NFR (1) Note __________________
Commercial Consumption cubic metre
__________________
PNG for Medium
N/A NFR (2) Note __________________
Commercial Consumption
PNG for Small Rs. 14.95 per Rs. 14.78 per __________________
Note
Commercial Consumption cubic metre cubic metre
NFR (1) No Fixed Rate: price equivalent to 90% calorific value of prevailing free
market price Light Sulphur Heavy Stock.
NFR (2) No Fixed Rate: price equivalent to weighted average basket of Light Diesel
Oil & Liquefied Petroleum Gas.
Note: Gujarat Gas does not publish its PNG price for commercial and domestic
users.
Till 1970's, gas prices were based on the recommendations

given by the expert committees. In early 1970's, ONGC set
gas prices on negotiated basis, resulting in different gas prices
for different consumer segments. In mid 70's, prices of natural
gas were determined by producers themselves, based on
thermal equivalence of substitute fuels and opportunity cost
to the consumer.
In 1986, a decision was taken by the Government of India to
fix uniform prices for natural gas on a year-to-year basis.
This policy was followed till 1991. From January 01, 1992,
the prices of natural gas were fixed for a period of four years
upto December 31, 1995 based on the recommendation of the
Kelkar Committee which was set up by the Government to
examine natural gas prices. The prices of natural gas during
this period were as follows (Table 7.7):
Table 7.7 : Build-up of Gas Pricing
Unit ($/MMBtu)
Sales Tax rate 20%
(a)
Stock Transfer Tax 4%
Import Duty 5%
Royalty 10%
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Notes Unit ($/MMBtu)

__________________
Transmission non-HBJ 0.15
__________________
__________________
(b) HBJ 0.70
__________________ Average Transportation 0.20
__________________
__________________
Unit ($/MMBtu)
__________________
__________________ GAIL
Non-HBJ HBJ
__________________
Price Linkage LSHS/FO basket
__________________
Basic Price 1.47 1.47
Royalty 0.13 0.13
Price inclusive of Royalty 1.60 1.60
(c) GAIL Transmission 0.15 0.70
Net of Tax Price 1.75 2.30
Sales Tax 0.35 0.46
Gross of Tax 2.10 2.76
Transportation Services
Delivered Price 2.10 2.76
(d)
Unit ($/MMBtu)
Niko-Hazira- Lakshmi to
GSPCL GPEC
Price Linkage Flat Flat
Basic Price 3.68 3.68
Royalty 0.37
Price inclusive of Royalty 4.05 3.68
GAIL Transmission - -
Net of Tax Price 4.05 3.68
Sales Tax 0.81 0.74
Transportation Services 0.10 0.56
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(e) Notes
Unit ($/MMBtu) __________________
PMT to GAIL (current) __________________
Floor Cap __________________
Price Linkage
LSHS/FO basket __________________
Basic Price 1.92 2.83 __________________
Royalty 0.19 0.28 __________________
Price inclusive of Royalty 2.11 3.11 __________________
GAIL Transmission - - __________________
Net of Tax Price 2.11 3.11 __________________
Sales Tax 0.42 0.62 __________________
Transportation Services - -
Sales Tax & Royalty

Table 7.8 : State-wise Sales Tax on Natural Gas and
Naphtha as on 01.04.03
State Natural Gas Naphtha
Andhra Pradesh 16 12
Delhi 20 20
Gujarat 20 16
Haryana 10 12
Karnataka 12 12
Kerala 24 22
Maharashtra 13 13
Orissa - 12
Punjab 8 12
Rajasthan 11.5 12
Tamil Nadu 8 16
Uttar Pradesh 20 -
Uttaranchal 20 -
West Bengal - 17
Source: Basic Statistics on Indian Petroleum & Natural Gas 2001-02
Note: You can access the below data by clicking on it.
Key Gas Contract Feature includes

The Contracts Module offers the opportunity to:
n Centralize Contract Management along with supporting

data. Specific Oil & Gas Contracts plus Generic
Agreement formats.
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Notes n Establish a central repository of all Contract counter

__________________ parties, with contact and address data.
__________________
n Define Contract prices, rates, fuel deductions and other
__________________ financial terms and conditions.
__________________
n Tie Contracts to wells, transportation custody transfer
__________________
and composition sample data points.
__________________
__________________ n Establish Contract and Counter Party Alerts and obtain
online alert notification.
__________________
__________________ n Setup and manage Contract Terms and Provisions by
__________________ subject in dated "brief" formats.
n Track Contract Amendments and cross-reference to
changes in terms and conditions.
n Utilize document imaging to quickly access key Contract
information from the online brief.
n Install Password security for creating and updating

Contract documents.
Contract Types include:
n Wellhead Gas Gathering: OGCIS functions with a
producer or gas gatherer orientation.
n Wellhead Oil Transportation: Pipeline and trucking

company agreements.
n Wellhead Oil and Gas Sales: Oil sales at posted plus
differential, gas sales at index less differential and
complete netback charge summary.
n NAESB/GISB Master Purchase and Sales Deal
Agreement: Wholesale spot and firm contracts for
purchase and sales transactions.
n Gas Pipeline: Interstate and long haul transportation

with telescoping and postage stamp rate structures.
n Time and Location Swaps: Swap transactions with
gain/loss terms and conditions.
n Storage Operations: Gas storage contracts on
pipelines or with storage operators.
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n Agent/Broker Agreements: Agreements to control Notes
transactions by agents/brokers. __________________
__________________
n Operating Agreements: Operator agreement with
__________________
partners in a drilling prospect and producing well.
__________________
n Miscellaneous Contracts: General format for __________________
inserting other contract terms and conditions outside
__________________
of the typical oil and gas marketing and transportation
__________________
contracts.
__________________
__________________
__________________
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UNIT 8 Regulatory Issues 135
Unit 8 Notes
__________________
__________________
Regulatory Issues __________________
__________________
__________________
Objectives
__________________
__________________
y Draft Policy for Natural Gas Pipelines.
__________________
y Uttar Pradesh Gas Policy2005.
__________________
y Concept of Entire Regulatory Framework.
__________________
Regulatory Framework
Historically, the Government has regulated prices and
investments in the Indian oil and gas sector. However, in
the past few years, the Government has moved towards a
market driven economy by withdrawing the restrictions
imposed on investments and by decontrolling the prices
falling under the Administrative Price Mechanism. Inter-
alia, the Government also mooted a proposal for a common
regulatory body for the natural gas and petroleum sector.
The Indian gas market is presently in a transition from an
administered control regime to a market driven system.
Under the new policy framework in the upstream side, the
New Exploration and Licencing policy (NELP) and the Coal
Bed Methane (CBM) policy are under operation, and
companies are free to market the gas produced from the
indigenous blocks (acquired by bidding process) directly in
the domestic market at market determined prices. The
import of gas through LNG and cross-border pipeline gas
imports are under Open General Licence (OGL), and
companies are free to market the imported gas at market-
determined prices. However, the gas produced by the
National E&P companies (ONGC, OIL) from the blocks
acquired by them on nomination basis is under administered
pricing mechanism. Shortly, the domestic gas prices are also
expected to progressively move towards a market based
pricing system. It is certain that the gas market in India is
under restructuring, and in the near future, there would be
multiple companies involved in gas marketing related
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Notes activities. Over the medium/long term period new cross

__________________ country gas pipelines will be required to meet the growing
__________________
gas demand in existing and new emerging markets in the
country. In view of the above changes taking place in the
__________________
Indian gas sector, an appropriate regulatory mechanism
__________________ would need to be established to ensure systematic
__________________ development of the Indian gas market in a cost effective, safe
__________________
and competitive manner. Keeping in view the increasing size
of the natural gas market in India, it is important to attend
__________________
to some of the key policy & regulatory aspects of the Indian
__________________ gas industry.
__________________
The R-Group Committee was set up by the Government in
__________________ the mid nineties in order to make recommendations on the
future structure of the petroleum industry. According to the
Group, a regulatory framework is necessary to ensure that
all gas marketers have access to the pipelines grid and that
the pipelines are operated in accordance with the prescribed
technical and safety standards. The role of the Gas
Regulatory Authority would depend on the structure and
the stage of development of the gas market. The R-Group
report succeeded by the HV-2025 report prescribes the policy
framework for the hydrocarbon sector in India. As regards
the policy itself, the Government of India came out with bold
initiatives in the upstream sector in the form of NELP and
CBM policies. Hydrocarbon Vision-2025 was a high level
exercise on the policy framework initiated by the Prime
Minister, and carried out by a group chaired by the Finance
Minister. The report provided continuity in policy directions
to many of the recommendations of the R-Group Committee.
It laid down recommendations targeted at achieving self-
reliance in the Indian hydrocarbon sector through increased
indigenous production and investments and the promotion
of competition amongst the players by creating a level
playing field.
To boost the level of exploration activity in the country so
that new finds can be made and the levels of crude oil and
gas production increased in the years to come, a need was
felt to attract both the National Oil Companies (NOCs), as
well as private sector oil companies to invest in this critical
area of E&P. Therefore, a New Exploration Licensing Policy
(NELP) was formulated by the government in 1997-98 to
provide a level playing field in which all parties could
compete on equal terms for the award of exploration acreage.
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Gas Allocations Notes
__________________
The regime of allocation was based on the premise that gas
__________________
was in short supply and that economic prioritization was
necessary to use the gas. Following the recommendations of __________________
the Varadharajan Committee, these allocations were based __________________
on the imputed economic value of gas use in the various __________________
sectors, subject to preference for the power and the fertilizer
__________________
sectors. In 1991, the Government of India established the
Gas Linkage Committee (GLC) in order to reassess the __________________
potential of gas production and establish the priority of gas __________________
supply to projects given the limited availability of gas. Based __________________
on the recommendation of the GLC, the Ministry of
__________________
Petroleum and Natural Gas makes three types of gas
allocations:
n Firm allocation is made to a consumer when gas

availability has been assured by producers and the
consumer has established the viability of the project and
is in a position to enter into a gas purchase agreement
within 60 days. In this case, the gas supply contract would
typically be subject to a take-or-pay arrangement for up
to 80 per cent of the contracted quantity.
n Fall-back allocation is made to a consumer when the

availability of gas is dependent on the failure of the firm
consumers to purchase the allocated quantity of gas.
Fall-back allocations are also made when the gas is
supplied from isolated and small gasfields, where the
availability of gas has not been confirmed for a long
periods and the supply is liable to disruption. There is
no take-or-pay arrangement, and a consumer pays only
for the gas actually consumed. Fall-back consumers
would usually have dual-fuel capability and would use
alternate fuels when gas is not available.
n In principle, allocation is made to consumers based on

the projected availability of gas and is subject to the
consumer establishing the viability of the project.
The first departure from this system of allocation has been

made in the cases of private developers of discovered fields
under NELP. Additional gas availability from NELP areas
and Pvt./JVCs sector is not the subject of allocation for GLC.
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Notes Only gas from blocks nominated comes under the preview of
__________________ GLC. Today, gas producers from NELP/CBM blocks are free
__________________
to choose their customers and sell gas at negotiated prices.
__________________ Today, the natural gas market in India is in the midst of
__________________ transformation. To promote private investment and more
widespread use of natural gas in its economy, the
__________________
Government has been evaluating alternatives to its existing
__________________ regulatory framework and organizational structure.
__________________
__________________ The Petroleum Regulatory Board Bill, 2002
__________________ This bill has already been tabled for enactment by the
__________________ Parliament of India and shall come into force on such date
as the Central Government may, by notification in the official
gazette, appoint. It is proposed to regulate the petroleum
operations post crude oil and natural gas production phase
and cover refining, processing, storage, transportation,
distribution, marketing and sale of petroleum and petroleum
products and their transportation through pipelines, the
transportation and sale of liquefied petroleum gas (LPG) and
natural gas through pipelines on common carrier basis,
establishment and operation of liquefied natural gas
terminals (LNG) and activities incidental thereto.
Integrated LNG Policy

In order to ensure energy security, the Government has been
planning to stipulate certain norms for import of LNG into
India. Based on the pilot plan prepared by the Department
of Shipping and Ministry of Surface Transport, the
Government has set up a Committee of Secretaries (CoS)
from the five core ministries to draft an integrated LNG
Policy. The draft policy prepared by CoS was worked upon
by the Ministry of Petroleum and Natural Gas, which was
forwarded to the Cabinet Committee of Economic Affairs
(CCEA) for approval. The CCEA, is to finalize the LNG Policy
that lays out the minimum norms relating to domestic
participation in LNG business, grants incentives to promote
LNG and rationalizes duties for various segments.
Draft Policy for National Gas Pipelines

With an aim to moot investment in gas pipelines and to
provide inter-connectivity between regions, consumers and
producers, Government has proposed certain guidelines for
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laying natural gas pipelines for the interim period till the Notes
Petroleum Regulatory Board Bill is passed by the Parliament __________________
and is notified for enforcement __________________
Uttar Pradesh Gas Policy - 2005 __________________

__________________
Policy for promotion of use of natural gas in industrial, __________________
domestic and transport sector and facilitating investment
__________________
in development of gas supply infrastructure in the State.
__________________
To promote investment and to facilitate the regulation of
__________________
the natural gas sector in the State, UP Government proposes
to lay down a policy. __________________
__________________
The policy of the State will be in addition to the acts, statutes/
policies of the Government of India and not in derogation of
any other central statute or policy.
This policy is formulated by the State Government to ensure
that the development and promotion of natural gas usage
and investment in natural gas transport and distribution
infrastructure system of the State is not stalled due to lack
of a legal framework and a policy.
Socio-economic benefits to the State:
n Natural Gas sector has the potential to bring in an

investment of around Rs 800-900 billion in the next 10-
15 years.
n Creation of new revenue streams for the Government -

local, state and central during construction phase and
subsequent operations.
n Direct and indirect employment opportunities.
n Spin-off industries-like ancillary, small and medium

scale and other businesses.
The policy has also identified following objectives:
n To make the State an energy surplus state.
n To maximize the availability of the natural gas in UP,

the clean and efficient fuel, at the most competitive rates
and terms to industrial, power, domestic, commercial
and automobile sectors in the State.
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Notes n To make available natural gas at all important

__________________ industrial and other locations in the State which have
__________________ potential demand.
__________________
n To promote a "State Natural Gas Grid" in the State.
__________________
__________________ n It would include study of supply options, study of
production options, suggesting the State gas grid route.
__________________
The gas grid shall connect all load centers of the State.
__________________
__________________ n To prepare a perspective plan to identify sources of
__________________ natural gas creation of necessary infrastructure, enhance
__________________
its utilization, thus, meeting the future energy needs of
the State till the year 2025.
n To explore and evaluate all possible supply options

available to the State within and outside the State
including international options to meet its future needs.
This shall include promotion of exploration for oil/gas
in the probable zones in the State where the oil/gas can
found. Efforts for bringing more gas to the State by using
the support of GOI in lying up supplies of gas by being
proactive.
n A detailed road map shall be planned with the help of

an expert agency to achieve the above objectives.
n To promote natural gas based projects in the State by

facilitating the efforts of the gas companies and other
investors by making transparent polices/rules, etc. and
ensuring that, the interest of all the stake holders like
end consumers, gas companies are taken care of.
n The regulatory structure for a level playing field for

potential investors and suggest route map for
maximizing utilization of natural gas in an optimum
manner in sectors like automobile fuel, domestic,
commercial, industrial, power sectors as fuel and feed
stock.
The work and responsibilities of "Uttar Pradesh State

Natural Gas Development and Regulatory Board" which shall
have Industrial Development Commissioner and Principal
secretary as its Chairman, shall be as given under:
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n The Board shall prepare a detailed perspective plan Notes
about the sources of supply of natural gas, the study of __________________
the requirement of natural gas in the State by sectors __________________
like industry in which it is used as fuel or feedstock and __________________
domestic, commercial, industrial and requirement by __________________
automobile sectors. It shall accordingly prepare a
__________________
detailed plan for creating suitable infrastructure for
__________________
transmission, supply and distribution of natural gas in
__________________
an optimum manner and suggest the phasing of these
projects. __________________
__________________
n The Board shall also frame necessary policies/laws/acts
__________________
to attract investments in these sectors in a transparent
manner and to function as a regulator to ensure that
the consumer gets the gas at a price which is justified
and meets its requirement and at the same time takes
care that the investors who have created the
infrastructure are able to get 12% return on their
investment after meeting the cost of capital expenditure
and operation.
n The Board will also ensure that a platform is provided

to the consumers and the suppliers and transmission
companies within the State so that it is used to remove
any misunderstanding, misgivings and ensure a business
like smooth relationship between these different
stakeholders. A level playing field shall be ensured to
all stakeholders.
n The Board shall also suggest the policies/levying of taxes/

cess for the petroleum products sold in the state, charges
on right of use, etc. which will be collected under
suitable heads and shall be made available to the Board
by the State Government.
n It will also decide the technical requirements/

specifications/standards for safety and environmental
consideration. The Board shall ensure that the
transmission and distribution companies comply with
these.
n The Board shall issue an "Expression of Interest" along

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Notes with a detailed set of guidelines of the points, which

__________________ shall help to get details of technical/financial competence
__________________ of the bidders who should have proven experience.
__________________ These set of guidelines shall need to be complied with
__________________ by every bidder. The Board shall also issue "No
Objection Certificate" (NOC) on behalf of the State
__________________
Government to lay distribution pipelines/supply
__________________
pipeline within the State to bidders selected based on
__________________
the technical & financial competence. It shall also be
__________________ ensured that the selected bidder gives its consent to the
__________________ detailed contract to be signed by him after getting NOC
__________________ from the Board. The Board shall also decide fixing the
prices at which the gas shall be available to the end
consumers.
n It will be ensured that the companies or consortium who

will be given NOC for laying distribution/supply pipeline
within the State should be given ordinarily not more
than two geographical zones, which will normally be
district boundary and will be identified by the Board.
The bids will be called by the Board/Agency for all of
the geographical zones for which bidders can apply.
n The Board/Agency shall decide the detailed guidelines

for laying distribution and supply pipelines within the
State.
n The decision for granting NOC shall be given by the

Board for particular geographical blocks/zones within
three month's on receipt of the application against the
"Expression of Interest" by the Board.
n The Board shall also focus on exploration and production

of oil and gas from the sedimentary basin located within
the State in Terai region and Ganges basin.
n The Board shall constitute a committee comprising of

Principal Secretary & IDC, MD, UPSIDC, Secretary
(Transport), Secretary (Urban Development), Secretary
(Finance) and experts in the field in order to ensure
impartial scrutiny of the proposals received. The Board
shall have the powers to co-opt senior officers of the
other departments of the State on the committee to
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support the efforts for making impartial scrutiny of the Notes
bids. After the Board has completed the selection __________________
process, a NOC to such selected applicants will be __________________
issued, with suitable modifications in the size of __________________
distribution zone. (taking into account that financial __________________
viability of the project may not be affected adversely)
__________________
and terms to go ahead with their distribution network
__________________
development, subject to following conditions:-
__________________
v There will be no exclusivity granted to the developer __________________
under the NOC. __________________
v Every applicant should provide non-discriminatory __________________

third party access on common carrier principle for
pipeline capacity that has not already been reserved
in a contract.
v The entity having the distribution network shall have

the right of first use up to a capacity level of 60% for
its own requirement and the remaining capacity
shall be used amongst entities, to ensure fair play.
v Any person using the pipeline will be required to

pay the transportation rate for use of common carrier
to the entity operating it as an authorized entity.
v The applicant should follow prudent industry

practices with respect to safety and environment.
v The applicant company should have a net worth of

about 30% of the likely project.
v Security deposit will be taken from the applicant at

the time of the issue of NOC. This deposit will be
placed with the Board. The NOC will be revoked if
no work is undertaken within one year from the date
of issue of NOC and the security deposit will be
forfeited.
Zone A - Rs 1 Crore for KAVAL towns, Greater Noida/

Noida, Jhansi, Meerut, Khurja, Varanasi, Allahabad,
Moradabad, Aligarh, Gorakhpur.
Zone B - Rs 50 lakhs for other zones.

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Notes v As and when any other relevant regulation is brought

__________________ in force, applicant will have to meet with the
__________________ requirements of the regulation.
__________________
n It will also examine the possibility to enact on line of
__________________ "Water & Gas Pipeline "(Acquisition of right of use) Act
__________________ of some States.
__________________
n The Board shall constitute a sub-committee for giving
__________________
clearance required for playing supply pipelines in the
__________________
State, related to environment, forest, river crossing,
__________________ urban areas, etc. for which it shall form a committee
__________________ consisting of concerned Secretaries of respective
departments. The Board shall act as nodal body and
shall provide single window clearance to the selected
gas companies it will also evolve a code of practices,
which could be developed to facilitate the efforts for
carrying out the business of gas companies.
n The Board shall ordinarily adopt the international

statutory provision for deciding safety and security
norms and standards for pipelines. The Board shall take
steps to decide safety norms, which shall be enforced,
on gas transmission, supply and distribution companies.
n Once the Board gives permission to the distribution

company for laying pipeline in urban areas then
company need not to take further permission from any
local authority. However, prior to giving such
permission the Board shall include a nominee of local
authority while considering the proposal of giving
permission to the distribution company.
n The Board shall also help to decide the route with for
laying gas transmission and supply pipelines in the State
taking into account the objections of the landowners,
restriction of construction of buildings, excavations that
may damage pipeline.
n The Board shall also lay guidelines for the compensation

to be given to land owners by gas distribution company
and the schedule of payment of compensation.
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n The Board shall also take up the issues with Government Notes
Of India in the interest of State about source of supply __________________
of gas, pricing of gas, etc. __________________
__________________
n The Board shall propose development of gas pipeline
network in the State, which will be non-discriminatory __________________
and is based on common carrier principle with level __________________

playing field for all users. __________________
__________________
n It will protect consumer interest by fostering
__________________
competition and fair trade among entities. It will try to
ensure adequate availability of natural gas in the State. __________________
__________________
n It will ensure transparency by display of information
about price fixed by the entity for consumers. It will
monitor prices and take corrective measures to prevent
profiteering by the gas supply companies.
n It will lay down and enforce retail service obligations

and marketing service obligations for gas companies. It
will maintain data base information about activities
related to natural gas, which can be made available to
consumers.
n It will perform such other functions as may be entrusted

to it by the State Government.
n The Board shall decide on appropriate provision to

define its role to prevent situation like sub-standard
construction, operating practices, ignorance of safety
norms, etc.
n A suitable mechanism for dispute resolution shall be

decided so that private investor may not hesitate in
making investment in this sector.
n The Board shall ensure the following to the end users.
n Reliable gas supply: It shall authorize an agency for

tie up with suppliers of natural gas and enter into a gas
purchase/supply contract to provide reliable gas supply
to the end users at justified prices. The body with whom
Board or its nominee shall enter into gas purchase/
supply contract shall normally be the gas company to
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Notes whom NOC has been issued except in the cases where
__________________ it is decided otherwise.
__________________
n Development of transport infrastructure: The
__________________
Board shall take necessary steps for laying the State
__________________ gas grid on its own or with the private sector investment.
__________________
n Contractual terms of supply of gas: Guidelines of
__________________
Model gas supply/purchase contract shall be decided by
__________________
the Board.
__________________
__________________ n Arrangement of alternative sources: The efforts
__________________
shall be made to tie up natural gas to be supplied to the
consumers. It shall also be ensured that polices for the
ban on polluting fuels are drafted and implemented in a
way that consumers shift to the gas uses and have
sufficient incentives to bring in investments. In such
cases the prices of the natural gas shall be on the basis
of fuel replacement to ensure that gas companies have
a viable operation
n Affordable prices for each of the sector: Efforts

shall be made to have long term contract as far as possible
to achieve this goal.
n Decide transportation tariff depending upon

distance of source: While GOI are likely to pass the
gas regulation bill act which will decide the
transportation tariff. However, wherever the State is
required to administer such regulation, it will do so with
due consideration by the Board.
n Pricing structure linking to indices, peak

demand, prices, etc.: The Board will be the third
party in the contract or will set guidelines, which will
be included in the contract between suppliers and the
customers to achieve the objectives as mentioned.
n The Board shall also study and draft policy to ensure

that end consumers are made liable to pay the bill of
the gas company in time. In case of any default the
penalty may be imposed on the defaulters. In case gas
company is not able to recover their dues as per the
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existing act then the State Government administration Notes
support and punishment shall be duly incorporated in __________________
the act to ensure that end consumers do not deliberately __________________
not pay the bill. __________________
n The guidelines shall be prepared to cover all aspects of __________________
consumer services, period of supply, consumer help line, __________________

suggesting energy saving advice, overall standard of __________________
performance and set standard of performance at service __________________
level. If the license fails to meet the required level of __________________
service, it will have to pay compensation to consumer __________________
affected.
__________________
Modified Gas Pipeline Policy (July 28, 2004)

As per the new directions which are yet to be notified, the
MoP&NG is of the view that all future common carrier
projects will go to companies which provide, among other
parameters, the most competitive tariff. The new criteria
would address the following objectives:
n Provide a framework for future growth of the pipeline

infrastructure.
n Promoting competition in gas sector.
n To promote investment from public as well as private

sector.
n To provide interconnectivity between regions,

consumers and producers.
n To promote competition among entities avoid

infructuous investment, maintain/increase gas supplies
and secure equitable distribution of natural gas through
out the country.
n Protect consumer interest.
Gas Pipeline Regulations in Developed &

Developing Countries
GAIL has identified certain parameters that should be taken
into account before grant of authorization for building gas
pipeline infrastructure in the country. It has requested the
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Notes oil ministry to take them into consideration while

__________________ formulating the gas pipeline policy. The various parameters
__________________
are:
__________________ n Public interest
__________________
n Safety
__________________
__________________ n Integrity
__________________ n Best financial viability
__________________
n Environment
__________________
__________________ n No duplication of infrastructure
n Least tariff
These parameters also support the concept that inter-state

high pressure trunk gas transmission pipelines should be
laid and operated by a nominated nodal agency (GAIL) as is
being followed in most of the countries. The structure is also
similar to the concept envisaged in the new Electricity Act.
GAIL has evolved these parameters after finding out and
studying the micro details of the methodologies and
procedures used for such grant of authorization in various
developed and developing countries. The countries, which
have chosen to deregulate the gas transmission business
exercise a strict control through a regulatory mechanism. A
very high order of cautious approach is adopted by Federal
Energy Regulatory Commission (FERC) in USA, under the
Gas Act 1995 in UK and other countries like Germany, Italy
& France. The FERC provides for strict pre-filing process
and encourages applicants to identify & address stakeholder
concerns before the certification process begins. Commission
ensures that multiple competing interests and timeliness
issues including need of new projects & environmental
concerns, are not only addressed but balancing of these
concerns is reflected in the decision for authorization of
laying/operating the facilities.
Similarly, UK Gas Act, 1995 provides for receiving
application to bring the attention of all interested parties
through public notification process. Further, it warrants to
take all applications/counter proposals and representations
before giving its reasoned verdict for granting authorization
to a particular party. Further, the Act does not allow laying
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pipeline in an area where another transporter is already Notes
operating without the consent of such transporter. __________________
In Germany, though there is no independent regulator, __________________

applications are invited by German Authority from __________________
interested parties for creating the gas pipeline infrastructure __________________
and authorization is granted based on various considerations.
__________________
__________________
__________________
__________________
__________________
__________________
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UNIT 9 Storage Techniques 151
Unit 9 Notes
__________________
__________________
Storage Techniques __________________
__________________
__________________
Objectives
__________________
__________________
y Entire Concept of Storage Techniques employed in development
of underground storage for Hydrocarbons. __________________
__________________
__________________
Strategic Storage for Natural Gas

Overview
Presently, there are 600 underground natural gas storage
facilities in the world. Majority of these gas storage facilities
are located in USA and Europe. USA alone has about 416 of
these storages while Europe has about 156 of gas storage
facilities. Rest of these facilities are mainly spread in Canada
and Australia.
Underground gas storage technique is based on the simple
principle which is as ancient as the geological traps which
have held and confined gas and oil deposits deep under the
ground or sea for millions of years all over the globe. In short,
underground gas storage entails nothing more than utilizing
the resources and properties of subsoil wherever found
suitable, without altering its qualities in any way.
Earlier, in the middle of twentieth century, leading oil and
natural gas companies of the world felt the need to store
large quantities of natural gas on account of the following:
n Load balancing
n To meet the varying gas demand due to seasonal

changes. For example in Europe, natural gas
consumption undergoes significant variations in the
winter months as bulk of natural gas is used for
residential heating apart from its use as industrial fuel.
During a normal cold spell, consumption of gas is 5 times
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Notes higher than summer months and some times, 9-10 times
__________________ higher on some extremely cold days.
__________________
n Peak demand shaving
__________________
n To assure security for uninterrupted supply of natural
__________________
gas
__________________
n Optimize natural gas network operation
__________________
__________________ n Of late, natural gas storage facilities are also being used
__________________ for price hedging and gas trading purposes
__________________
Techniques employed in development of
__________________
underground storage for Hydrocarbons
Techniques employed in development of underground
storage for Hydrocarbons are as follows:
n Leached salt caverns: In a number of locations, salt

deposits are available in underground layers.
Depending upon the thickness of the salt deposit at a
location, holes are drilled (1000-1500 metres deep) upto
the salt bed with a casing pipe. Water under pressure is
injected in the salt deposit and the resultant salt solution
(Brine) is taken out through the casing. The size of the
cavity is gradually increased till the storage attains the
volume of a commercial site. This feat of hollowing out
cavities is rendered feasible by the excellent solubility
and tightness of rock salt, which is impermeable and
non porous. Natural gas can then be stored under
pressure in the gaseous state, in complete safety, deep
inside the salt deposit. LPG is also widely stored in salt
caverns and HPCL is developing one such storage
facility at Vizag.
n Aquifer storage: Aquifers are any rock or sediment

with spaces that hold water and through which
significant quantities of water move. Aquifers have
connected pores or open fractures through which fluid
may flow. Aquifers to be developed for underground
storage of gas should have high hydrostatic pressure for
gas containment. Storage in an aquifer consists of
transforming a very small part of a deep, water-
saturated bed of rock into a natural deposit for gas
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UNIT 9 Storage Techniques 153
without modifying the architecture of the subsoil in any Notes
way. Gas is injected through compressors into the __________________
porous, permeable reservoir rock via the operating __________________
wells, where it gradually takes the place of the water. __________________
Peripheral observation wells continually and accurately __________________
monitor the movement of the gas and the water it
__________________
displaces.
__________________
n Mined caverns: In order to create underground facility __________________
for storage of natural gas, a system of tunnels is dug at a __________________
depth of 100-200 meters below the ground. The material __________________
scooped out during the development of cavern is
__________________
removed with the help of equipment moving along the
access tunnels. These tunnels are subsequently sealed
by water layer above the cavern for preventing the
leakage of stored gas. Additionally, a vertical shaft is
drilled from the surface to the cavern for facilitating
injection and withdrawal of gas.
n Depleted fields: Conversion of the depleted natural

gas or oil fields that are close to concerned centres, from
production to storage gives the advantage of existing
lines, gathering systems and pipeline connections.
Depleted oil and gas reservoirs are the most commonly
used underground storage sites because of their
availability and suitability for gas storage. There are 474
storage reservoirs in the world using depleted reservoir.
Depleted fields are used for storage of large volumes.
Table 9.1: Types of Underground Gas Storages
Types Nos. Percentage

Depleted fields 474 77
Aquifer 76 12
Salt cavern 62 10
Mined caverns 03 01
The gas storage capacities of various such facilities in general

varies from 100 MMSCMD to 2000 MMSCMD or even more
in some cases. The pressure at which the gas is stored varies
according to the type of storage and in general varies from
50 bars to 150 bars.
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Appendix 155
Appendix Notes
__________________
__________________
__________________
__________________
Deregulation Glossary of Terms __________________
__________________
| A | B | C | D | E | F- J | K | L | M-O | P-Q | R | S | T |
U | V-Z | __________________
__________________
A | top |
__________________
Agent Services: All necessary coordination services __________________
required for the delivery of electricity to the facility,
including scheduling coordination and account management
services.
Aggregate: To bring individual power purchasers together

into a group to add together (or aggre-gate) their electricity
demand.
Aggregation: Forming large groups of customers to bargain

for better rates.
Alternate Retail Electric Supplies (ARES): An entity

other than the Utility, certified by the Commission pursuant
to Section 16-115 of the Public Utilities Act (220 ILCS 5/16-
115) that sells electricity, to an electric retail Customer,
utilizing the Transmission and/or Distribution facilities of
the Utility.
Ancillary Services: Services that are necessary for the

transmission and distribution of electricity from supply
sources to loads and for maintaining reliable operation of
the transmission and distribution system.
B | top |
Balancing: The entire electric power system is designed to
keep supply and demand in constant balance. To maintain
this balance, a utility must constantly adjust its generation
levels to meet changing electricity demands, while holding
the electrical frequency of its power supply constant at 60Hz.
Maintaining a constant electrical frequency is somewhat like
maintaining a constant speed in a automobile. There are costs
associated with these services.
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Notes Base Rates: The rates for those tariffed services that the
__________________ electric utility is required to offer or tariffs that were in effect
__________________
prior to October 1, 1996.
__________________ Bundling: Combining generation, transmission, and
__________________ distribution and other services under one entity and one
unified electric bill. Unbundling means separating those
__________________
services among different suppliers.
__________________
__________________
C | top |
__________________ Co-generation: (1) Any of several processes that either use

__________________ waste heat produced by electricity generation to satisfy
thermal needs, or process waste heat to electricity, or
__________________
produce mechanical energy. (2) The use of single prime fuel
source in a reciprocating engine or gas turbine to generate
both electrical and thermal energy to optimize fuel efficiency.
The dominant demand for energy may be either electrical or
thermal. Usually it is thermal with excess electrical energy,
if any, being transmitted into the local power supply lines.
Commission: The Illinois Commerce Commission.
Competitive Services: Includes any service that has been
declared to be competitive pursuant to the legislation,
contract service, and services, other than tariffed services,
that are related to, but not necessary for, the provision of
electric power and energy or delivery services.
Competitive Transition Charge ("CTC"): A charge
established by the Commission that is designed to recover
the Utility's stranded and transition costs that might not
otherwise be recovered from the Customer in a competitive
electric supply market. This charge is defined in the Utility's
Rate CTC.
Customer: You and/or your company.
Customer Charge: A charge designed to recover the costs
the Utility incurs in providing a customer such service as
metering, reading the meter(s), providing dedicated delivery
service and billing to an account.
D | top |
Delivery Service: The provision of electric distribution
and other services provided by the Utility to a customer who
has exercised its right to purchase all of its Electric Supply
Service for an account from an Electric Supplier other than
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Appendix 157
the Utility, where the delivery of electricity is through the Notes
Utility's Distribution Facilities. The charges associated with __________________
this service are outlined in the Utility's Rate RCDS.
__________________
Deregulation: Deregulation splits off two lines of the power __________________
business that have been controlled by monopoly utilities. It __________________
allows new players to compete in providing electric services
__________________
setting their own prices rather than negotiating with state
regulators on a fixed rate. __________________
__________________
Direct Access Model: A model deregulating the generation
side of the business, where retail electric customers purchase __________________
electricity directly from generation companies or marketers. __________________
Distribution Facilities: Electric facilities owned and/or __________________

maintained by the Utility that operate at voltages of 34,500
volts or below and that are used to deliver electricity, up
through and including the point of physical connection with
electric facilities owned by the customer.
Distribution Lines: Power lines that carry low voltages of
electricity directly to homes and business. They run along
city streets and are often supported by wooden poles. Low
voltages range from 2,300 volts to 69,000 volts.
Distribution System: Network of medium -and low-
voltage lines used to distribute power from Transmission
lines (see Transmission network) to local business and
residential power users.
E | top |
Electric Power Grid: A complex infrastructure of electric
power lines and substations that support the delivery of
electricity generated by linked power plants.
Electric Supply Service: The provision of electricity (i.e.,
capacity, energy, and fuel) and other services provided by
the ARES or the Utility to a Customer.
Electronic Data Interchange (EDI): Electronic exchange
of data for customer enrollment, billing data exchange,
termination of service, etc.
Embedded Cost: Money already spent for investment in
plant and operating expenses - costs incurred due to the
former regulatory obligation to serve.
Energy Policy Act of 1992: Legislation that authorized
the Federal Energy Regulatory Commission to introduce
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Notes competition at the wholesale level. The act encourages

__________________ deregulation at the state level but does not mandate it.
__________________ F-I | top |
__________________
Federal Energy Regulatory Commission (FERC): The
__________________
agency that monitors sales of electricity across state lines
__________________ and regulates the use of transmission lines for such sales.
__________________
Fuel Adjustment Clause: A clause in a rate schedule that
__________________ provides for an adjustment to the customer's bill if the cost
__________________ of fuel at the supplier's generating stations varies from a
__________________ specified unit cost.
__________________ Independent System Operators (ISO): ISO's operate,
but do not own, transmission systems. On an hour-by-hour
basis, the ISO plays traffic cop for buyers and sellers using
energy transmission systems. Because power takes the route
of least resistance and pays no attention to company
boundaries, all providers transmitting energy affect each
other when energy flows over transmission lines. Several
large transactions taking place simultaneously can cause
reliability problems for companies in the middle. An
independent organization with jurisdictional control is
supposed to avoid bottlenecks or other problems - and ensure
some measure of reliability.
K | top |
Kilowatt Hour (kWh): Unit of measure equal to 1,000
watts used continuously for one hour.
L | top |
Load: The amount of electric power required at a given time
by energy consumers.
Load Shape: The variation in the magnitude of the power
load over a daily, weekly or annual period.
M-O | top |
Mandatory Transition Period: The period from the
effective date of the legislation through January 1, 2005.
Market-based Pricing: Market-based pricing helps
customers tailor their electric use to times when energy costs
are low. Typically, off-peak rates are lower than when demand
is higher.
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Appendix 159
P-Q | top | Notes
__________________
Poolco: An independent power pool entity that operates the
electric transmission grid and dispatches generating plants __________________
by buying and selling wholesale power. __________________
__________________
Power Broker: A company that puts buyer and seller
together, facilitating the sale of energy at a price acceptable __________________
to both sides. __________________
Power Marketer: A company that purchases electric power __________________

and then resells it to wholesale or retail customers. __________________
Marketers typically do not own generating facilities. Power __________________
marketers are required to be certified by the Federal Energy
__________________
Regulatory Commission (FERC).
Power Pool: A group of utilities and other energy
companies within a region that have joined to coordinate
power-plant and electric-grid operations to maintain reliable
delivery service.
Power Purchase Option: The provision for the Customer
to select the Utility to supply retail electricity and related
services. The charges associated with this provision are
outlined in Rider PPO and are based on an electricity cost
developed by a Neutral Fact Finder. This cost is to be
reevaluated on an annual basis.
Power Supply Coordinator: A new kind of energy
company that neither produces nor distributes power, but
maintains a portfolio of energy and transmission capacity
suppliers for an aggregated group of users.
Public Utilities Commission: Also know as Commerce
(as in Illinois Commerce Commission) Commission, Public
Service commission (Missouri Public Service Commission),
Department of Public Utilities, etc., varying from one state
to another. The state regulatory agency that governs retail
utility rates, sets profit levels and also issues approvals for
the construction of new generation and transmission
facilities. There are regulatory commissions in all 50 states
and the District of Columbia.
R | top |
Rate Restructuring: Identify opportunities to switch to
lower rates and negotiate to recover past overcharges.
Real-Time Pricing: Charges for delivered electric power
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Notes and energy that vary on an hour-to-hour basis for non-

__________________ residential retail customers and that vary on a periodic basis
__________________
during the day for residential retail customers.
__________________ Retail Access:The ability to purchase power or natural gas
__________________ from a licensed energy service provider rather than a local
utility.
__________________
__________________ Retail Customer: A single entity using electric power or
__________________
energy at a single premises and that is receiving or is eligible
to receive tariffed services from an electric utility, or that is
__________________
served by a municipal system or electric cooperative.
__________________
Retail Electric Supplier Service: The provision of
__________________
transmission and ancillary transmission services by the
Utility to the ARES. The charges associated with this service
are outlined in the Utility's Rate RESS.
Retail Wheeling: The sending of electricity over another
company's lines.
S | top |
Stranded Costs: Utility assets, mainly power plants that
would lose value in a competitive market. Utilities need to
be able to recoup the cost of building power plants from
customers who leave them for other power suppliers.
T | top |
Tariffed Services: Services provided to retail customers
by an electric utility as defined by its rates on file with the
Commission pursuant to the provisions of Article IX of the
Illinois Public Utilities Act, but shall not include competitive
services.
Transition Charge: Through transition fees paid by
customers, who switch suppliers, utilities would be allowed
to recover some of their costs incurred as a regulated utility
up to the year 2006. This charge, allowed under Illinois
legislation, is calculated as revenue and based on customers'
three-years-prior usage and the base rates in effect Oct. 1,
1996. It is adjusted for a reduction required in the Illinois
restructuring legislation - the mitigation factor- and for
adjustments made to freeze a fuel adjustment charge. Based
upon a formula tied to the base rates of the utility the
customer is leaving, the mitigation factor reflects the amount
of cost reduction for which the utility is directly responsible.
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Appendix 161
This factor is subtracted from the transition charge the Notes
departing customer must pay, and the amount subtracted __________________
increases during the transition period up to 2006. After all __________________
the subtractions, the number that remains is the transition
__________________
charge the utility can collect from the departing customer.
__________________
Transition Service (TS): The provision of electricity and
__________________
related services to the Customer by the Utility and is
designed to recover the cost of producing or procuring __________________
electricity by the Utility for the Customer during a transition __________________
period. The charges associated with transition services are __________________
outlines in the Utility's Rider TS.
__________________
Transmission: The process of transporting electric energy __________________
in bulk on high voltage lines from the power plant to the
local distribution company for delivery to retail customers.
Transmission Grid: The high voltage wires that connect
generation facilities with distribution facilities. Also known
simply as "the grid".
Transmission Lines: The "super-highways" of an electric
power grid, transmission lines carry high voltages, 69,000 to
765,000 volts, of electricity between cities. Large steel towers
often support them.
Transmission Network: Network of high-voltage, high-
capacity lines that carry power great distances (often from
state to state) from generation plants to local distribution
systems for distribution to businesses and residential power
users.
Transmission Service: The provision of electric
transmission and other services provided by the Electric
Supplier to a customer from supply sources through
transmission facilities.
Transmission Facilities: Electric facilities owned by the
Utility that operate at voltages above 34,500 volts and that
are used to transmit and deliver electricity to Customers up
through and including the point of physical connection with
electric facilities owned by the Customer.
U | top |
UDC: Utility Distribution Company
Unbundling: Separation of generation, transmission and
distribution functions of the utility.
OLEUM &
E TR EN
FP
ER
YO
GY
u
UNIV ER SIT
ST U DI ES
n ~;
k ; k kf D r o
k~ e
Notes Utility: The Electric Company that is currently providing

__________________ your electric service.
__________________ V-Z | top |
__________________
Vertical Disaggregation: Separating electric generation,
__________________
transmission and distribution functions of a utility into
__________________ separate companies. Also called "unbundling".
__________________
Voltage: Voltage in an electric system is much like pressure
__________________ in a water pipe. In a water system, pressure is needed to
__________________ move water through a pipe. In an electric system, voltage is
__________________ needed to send power through a wire.
__________________ Wheeling: The transportation of power to customers.
Wholesale wheeling is transmitting bulk power over the grid
to power companies. Retail wheeling is transmitting power
to end users such as homes, businesses and factories.
Wholesale Customers: Power marketers, rural electric
cooperatives, and municipal utilities.

Mdso-803-Understanding Natual Gas Business

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Course Code: MDSO-803

Course Name: Understanding Natural Gas Business

Unit 1 Natural Gas Chain ............................................................................................... 1

Unit 2 Global Natural Gas Scenario ............................................................................ 23

Unit 3 Domestic Gas Scenario ...................................................................................... 37

Unit 4 End Use Consumption ....................................................................................... 65

Unit 5 Import Options ................................................................................................... 79

Unit 6 Transmission and Distribution ........................................................................ 97

Unit 7 Gas Pricing ........................................................................................................ 121

Unit 8 Regulatory Issues ............................................................................................. 135

Unit 9 Storage Techniques .......................................................................................... 151

Appendix ............................................................................................................................ 155

There are many different theories as to the origin of fossil

In additioin to being found in a traditional reservoir, natural

Naturally occurring natural gas was discovered and

Most in the industry characterise this well as the beginning

One of the first lengthy pipelines was constructed in 1891. __________________

Once the transportation of natural gas was possible, new uses

How the Natural Gas is trapped?

Inaddition to reservoir rock quality, the accumulation of

Notes hydrocarbon and prevents them from migrating further.

When rocks are fractured and large sections have slipped

A salt dome is another type of combination trap where a large

n The Exploration section outlines how natural gas is

n The Extraction section focuses on the drilling process,

n The Production section discusses what happens once the

n The Transport section outlines how the natural gas is

n The Storage section describes the storage of natural gas,

n The Distribution section focuses on the delivery of

n The Marketing section discusses the role that natural

Notes Exploration Techniques

Two of the most prolific and often performed tests include

Standard logging consists of examining and recording the

Electric logging consists of lowering a device used to measure

The drilling of an exploratory or developing well is the first

putting together a puzzle, the geophysicist uses all of the __________________

2-D Seismic Interpretation

3-D Seismic Imaging

Notes raising the success rate of exploration efforts. In fact, using

2-D Seismic Imaging

While 2-D seismic imaging is less complicated and less

Extraction of Natural Gas

Once a potential natural gas deposit has been located by a

The decision whether or not to drill a well depends on a

The exact placement of the drill site depends on a variety of

This process includes strengthening the well hole with

Completing a well consists of a number of steps; installing

n Lifting and Well Treatment

Installing well casing is an important part of the drilling and

Well completion commonly refers to the process of finishing

n Open Hole Completion

n Conventional Perforated Completion

n Sand Exclusion Completion

n Multiple Zone Completion

The use of any type of completion depends on the

Open Hole Completion

Sand Exclusion Completion

Sand exclusion completions are designed for production in

Multiple Zone Completion __________________

Drainhole completions are a form of horizontal or slant

Notes extraction of hydrocarbons from the underground formation.

The tubing head is much like the casing head. It provides a

The christmas tree is the piece of equipment that fits atop