indian gas scenario: emerging business opportunities and

22nd World Gas Conference Tokyo 2003

KEYNOTE ADDRESS (KA I-7)

Indian Gas Scenario: Emerging Business Opportunities and Environmental Concerns

Mr. Proshanto Banerjee

Chairman and Managing Director, Gas Authority of India

India

June 5, 2003

1

“Indian Gas Scenario: Emerging Business Opportunities and Environmental Concerns”

22nd World Gas Conference, Tokyo 2003‘Catalysing an Eco-Responsible Future’

PROSHANTO BANERJEEChairman and Managing Director

GAIL (India) Limited

GAIL- A Profile

Global Energy scenario

Indian Natural Gas Scenario

Emerging Business Opportunities

Towards An Eco-Responsible Future

CONTENTS

2

Gas Market Share 92 % - Market Leader

Turnover US$ 2.5 Billion (FY 2002-03)

8th among all Indian Companies*

Net Profit US$ 334 Million (FY 2002-03)

6th among all Indian companies*

Market Capitalisation US$ 1.3 Billion

6th among Oil & Gas companies in India*

ROIC (2001-02) 16.2%

2nd Highest Among Global Gas Utilities**

INDIA’S NO. 1 GAS COMPANY

* As per Economic Times ET 500, May 2003 ** As Per Platt’s Global Energy Business Review 2001-02

CUSTOMERS

FERTILIZERS

POWER

INDUSTRIAL

DOMESTIC

TRANSPORT

CUSTOMERS

FERTILIZERS

POWER

INDUSTRIAL

DOMESTIC

TRANSPORT

GAS SUPPLY

DOMESTIC

IMPORTS

GAS SUPPLY

DOMESTIC

IMPORTS

TRUNK PIPELINESTRUNK

PIPELINES PROCESSINGPROCESSING

VALUE ADDED PRODUCTS /

SERVICES

VALUE ADDED PRODUCTS /

SERVICES

PRODUCTION AND MARKETING OF

PETROCHEMICALS

PRODUCTION AND MARKETING OF

PETROCHEMICALS

LPG & ALLIED LPG & ALLIED

LPG PIPELINES

LPG PIPELINES

DISTRIBUTION

PIPELINES

DISTRIBUTION

PIPELINES

AN INTEGRATED GAS COMPANY

TELECOMTELECOM

3

178.12164.3Natural Gas

1899.29124.8Total Primary Energy2001

10.4988.1Natural Gas

463.25206.9Total Primary Energy1971

Developing Asia*

Total WorldConsumption in MMTOE1

4.5 %2.8 %Natural Gas

3.0 %1.9 %Total Primary Energy2025

Developing Asia*

Total World

Avg. Annual % Change2

2001-2025

* Developing Asia includes India, China, S Korea, Thailand, Malaysia, Indonesia, Taiwan and othersSource: 1 BP Statistical review Of World Energy, June 2002

2 EIA Energy Outlook, 2003

GLOBAL ENERGY SCENARIOFrom 1971 - 2001

• Share of Natural Gas in total primary energy basket has grown from 18.9% to 23.7%

• Share of Natural Gas in total primary energy in Developing Asia has grown from 2.2% to 9.4%

Going Forward

• Developing Asia projected to be the fastest growing energy consuming region with significant contribution of Natural Gas to drive the growth

GLOBAL ENERGY SCENARIONATURAL GAS OUTLOOK

Asia share of World Energy Demand to increase

Growing Gas Reserves WorldwideIn 2001- Gas reserves exceeded Oil Reserves by 5% as per IEA study

Inter Regional Gas Trade Flows.(Cross Border)-IEA study2000 : 16% of world Gas

Consumption2030 : 28% of world Gas

Consumption

Expanding Pipeline Network and new LNG Projects will promote Regional and Global market Integration.

Power Sector to drive Global Gas Consumption.

Europe and Asia would emerge as major importers.

Emergence of the Natural Gas Era

Major Importing Countries(Europe,China,Japan,India,South Korea)

Major Supplying Countries(Africa, Middle East, Former Soviet Union, Malaysia, Indonesia)

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INDIA – A FAST GROWING GAS/ENERGY CONSUMER

Source: (1) BP Global Statistical Review of World Energy, June 2002 (2) International Gas Union Statistics

Gas Vs Energy Growth

INDIA – A FAST GROWING GAS/ENERGY CONSUMER

India – Poised To Climb The Energy Ladder Quickly, Cleanly And Efficiently

Challenges in Energy Sector - India• Ensure supply security

• Enhance self sufficiency

• Diversify traditional energy sources

• Promote clean & efficient energy use

for sustained growth

• Reform & Restructure energy market

to attract Private & foreign investments

• Expand regional trade

•Align with global markets

Gas Vs Energy Growth

Source: (1) BP Global Statistical Review of World Energy, June 2002 (2) International Gas Union Statistics

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INDIAN NATURAL GAS SCENARIO:GROWTH OVER THE YEARS

Gas in Energy Basket(MMTOE)

0

50

100

150

200

250

300

1980 1985 1990 1995 2001

Oil CoalHydro NuclearGas

1.1%

2.5%

5.8%

7.0%

7.6%

Gas as a % of total energy

Natural Gas Projected To Be The Fastest Growing Energy SourceImproving Its Share From Current 8% To 20% By 2025*

Source:BP Global Statistical Review of World Energy , June 2002

Challenges in Gas Sector - India

• Organize competitive supply– Domestic/ Cross Border

• Price elasticity & demand build-up• Optimal infrastructure development• Reforms in electricity markets• Policy interventions - Planned

deregulation to provide growththrust

• Address environmental concerns

314.8

252.4

193.3

136.9

102.9

* Hydrocarbon Vision 2025

INDIAN NATURAL GAS SCENARIO:CURRENT STATUS

India – Emerging as a multi-source and multi-market destination

Administered pricing mechanism paving way for market determined pricing era

Gas Price

Along East Coast, Southern Regions

** 2800 km Hazira-Bijaipur-Jagdishpur Trunk pipeline

Emerging Supply-Demand Centers

*Prior to deep-sea finds in KG basin in 2002

Western-Northern Corridor Along HBJ**Key Demand CentersAlong Western OffshoreMajor Producing Fields

LNG Imports to commence from 2004Gas Imports68 MMSCMDGas Supply120 MMSCMD Current Demand25 YrsR/P Ratio*29.7 BCM Gas Production (2001-02)763 BCM Gas Reserves (2001-02)

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Nuclear

Hydel

Naphtha

Natural Gas

Wind

Coal/lignite

Others

ExternalAmmoniaFuel Oil

Naphtha

Natural Gas

Source: MoPNG, Cris-Infac, GAIL

50%

5%

19%

34%

16%

8%

26%40%

2%Power

Fertiliser

Industries

Retail

Others

1985-86

2002-03

49 %

30 %

09 %

10 %

02 %

64 %

01 %

07 %

02 %

23 %

02 %

Power

Power & Fertiliser sector to be the ‘Key anchor market’ with Industries as ‘Developing market’ and Retail Gas (CNG/City Gas/Auto LPG) Emerging Growth market .

Industries include Sponge Iron, PetrochemicalsRetail include CNG, City gas, Commercial, Tea Plantation users Others include LPG shrinkage, Captive consumption

To go up to15% by 2030(IEA Study)

Fertiliser

INDIAN NATURAL GAS SCENARIO:END USAGE TREND

231185 166

313263

216

050

100150200250300350

2006-07 2011-12

HV-2025 Optimistic ADB Gas Master PlanHV-2025 Conservative

MMSCMDPotential Demand Scenarios

India – Potential Growth Hub In Natural Gas Sector In The Region

INDIAN NATURAL GAS SCENARIO:MARKET POTENTIAL

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Domestic Gas Sourcing• New Exploration Licensing Policy (NELP) I, II, III

– Contracts for 70 blocks signed covering a total area of 0.71 million sq. Km

– Estimated investment of US $ 3 Billion which will go up with more discoveries

– 9 discoveries within three years– Initial estimates of reserves > 300 MMTOE oil & oil equivalent gas– World class gas discovery in year 2002 (~7TCF) in KG basin– India established commercially as the latest global destination for

deep water areas• NELP IV

– 24 exploration blocks on offer (11 onshore, 12 deep water, 1 shallow water)

Upstream Reforms- Emergence of New Hydrocarbon Provinces

INDIAN NATURAL GAS SCENARIO:EMERGING SUPPLY SOURCES

Gas Imports• LNG Terminals (Along West Coast)

– Petronet LNG, Dahej – 5 MMTPA– Shell Hazira – 3.5 MMTPA– Dabhol LNG – 5 MMTPA

• Cross Border Pipeline (From East & West)– Iran– Myanmar– Bangladesh

INDIAN NATURAL GAS SCENARIO:EMERGING SUPPLY SOURCES

India – Strategically Located With Favorable Geographic Disposition

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INDIAN NATURAL GAS SCENARIO:INFRASTRUCTURE CONNECTING DEMAND & SUPPLY CENTERS

National Gas Grid – Clean Energy Corridor

INDIAN NATURAL GAS SCENARIO:KEY FACTORS

Deregulation• Progressive decontrol of gas prices by government• Setting up of Downstream Petroleum Regulatory Board• Introduction of Open Access principle• Framework of Transportation Tariff determination• Unbundling of Transportation and Marketing

Gas Price / Transportation Tariff• Gas To Gas competition: Innovative Pricing Contracts• Concept of pooled pricing • Multiple producer prices and multiple consumer prices for new/regional

markets• Postalised Vs Distance based transmission tariff – Zonal pricing for

high pressure grid and postalised tariff within zone• Tariff methodology moving towards international practices –

From DCF to Cost of services methodology

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Globalisation• Enhanced Foreign investment in indigenous E&P.• Equity gas from foreign acreage.• Integrated participation across LNG chain.• Regionalisation – Emergence of Pan-Asian pipeline projects reaching

Indian gas market.• Cross -border gas trades to drive price convergence in gas across

regions.

Technology• Increased monetisation of reserves due to advances in deep drilling• Enhanced viability to bring gas due to advances in logistics – LNG,

Deep sea pipelines, CNG by ship, VOTRANS CNG, Coselle, GTL etc• Development of new markets due to developments in end user side –

CCGT Power Generation, Distributed power, Direct gas use in homeappliances, Air conditioners etc


Concern For Environment

• Share of Gas to grow in the fuel/feedstock markets across various

segments – Power, Fertiliser, Industries, Transport and Homes due to

sustained thrust from judiciary and policies.

• Emerging carbon trading to provide additional incentive for increased gas

use.


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EMERGING BUSINESS OPPORTUNITIES

1. Gas Sourcing ( Exploration & Production / LNG Supply)• Strategic long term investments

• Alliances and Joint Ventures

• Surveys, Drilling, Design Engineering, Consultation, Operations & Maintenance

• Licensing/Technology partnerships

• Receiving LNG Terminal/Regasification

2. Gas supply Infrastructure• National Gas Grid being planned -7000 km of pipelines

linking multiple sources and multiple markets – Investment : US$ 4.2 billion

• Pipeline supply / laying

• Design and Development

Business Investments Financial Services & Contracts

EMERGING BUSINESS OPPORTUNITIES

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3. End Use Sector

• Power generation : Capacity additions of 6000 – 7000 MW/year is likely

• Investment opportunities in Gas-Power convergence (Generation, Transmission and Distribution)

• Fertiliser: Capacity expansions

• Other industrial users of gas

4. Gas Retailing (CNG / Auto LPG/Residential)

• Distribution pipelines

• Creation of dispensing stations

• CNG kit / Automobile sector investments

EMERGING BUSINESS OPPORTUNITIESBusiness Investments Financial Services & Contracts

• Long term and short term funding of investments (domestic and foreign currencies)

• Consortium Lending and Financial Advisory services

• Financial Appraisal / Feasibility studies

• M & As – Due Diligence / Valuation studies


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• Contract consultancy and negotiation

• Legal, Insurance, Advisory and Risk Management Services

• Market Studies

• Training

• Technology partnerships


TOWARDS AN ECO-RESPONSIBLE FUTURE

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CONCERN FOR ENVIRONMENT

1. Air Pollution is the Key threat to human health

2. Alarming increase in levels of Air Pollution primarily because of Vehicular pollution

3. Alternate Fuels for Vehicles provides a solution; But requires external push and incentives for mass implementation

• Gas Supply to Taj Trapezium:

• To Mathura Refinery

• To Foundries in Agra

• To glass industries in Ferozabad

• CNG for Metros:

• Started in Mumbai (MGL) and Delhi (IGL)

• Bolstered by Judiciary directives (2000) to convert all public road vehicles to CNG in Delhi

• Models to be replicated in most major urban centers

• Auto LPG

• Motor Vehicles Act amended in 2001 to include Auto-LPG as vehicle fuel

Rationale Initiatives to promote Gas/alternate fuels

Environmental concern is a key driving force to promote the usage of alternate fuels for vehicles including natural gas

Per Capita CO2 emission :India: 0.91 MT USA:8.88 MT Qatar: 63.11 MT World Avg: 3.88 MT

70%

25%

5%

Transport Industries Others

AIR POLLUTION IN METROS IN INDIA

Source - CPCB, Delhi

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INDIA: CNG EXPERIENCE

Successful Introduction of CNG in buses and cabs in New Delhi, Mumbai

Significant reduction in air pollution in Industrial, Residential and Commercial areas- 30% to 99% reduction in Level of pollutants like So2, Nox,

RSPM,SPM and CO. (Source : NEERI, Mumbai /GAIL)Number of registered vehicles in India :11.7 million (Large potential)

(Buses, Taxis, Private Cars, Three Wheelers)Potential in Mumbai/ Delhi alone :1.47 million (Vehicles)

Replication to other cities on the anvil

India ideally placed to share experience with other countries to launch CNG initiatives

CNG StationsNumber of vehicles on CNGCity

4677000Mumbai:10678500Delhi:

ECO-RESPONSIBLE FUTURE:GAIL’S ROLE

• Project Blue Sky• CNG To The Cities Of Lucknow, Agra, Faridabad, Kanpur & Pune

• Project Cost Of ~ US $ 115 Million

• Bhagyanagar Gas Limited• CNG & Auto LPG For The State Of Andhra Pradesh

• Gas value Chain• Expand retail gas operations – Commercial/Small industries, City gas

in major cities across India along with CNG plans• Prevention of denudation of forests by responsible use of plastics

• Global Plans• MoU with IFCO, Iran for CNG Infrastructure• Alliance with Shell for Town Gas and CNG Projects In Egypt• Carried out ADB funded Feasibility Study for CNG In Bangladesh• CNG in Turkey

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India is emerging as a land of enormous business opportunities in the natural gas sector.

India is committed to creating an eco-responsible future by expanding natural gas usage.

CONCLUSION

Let us work together towards building an eco-responsible business

THANK YOU

indian gas scenario: emerging business opportunities and

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