NATURAL GAS TRADING IN INDIA

NATURAL GAS TRADING IN INDIA

Gas Market in India
Natural gas industry in India is under government control today due to its strategic importance. Till few years back, the production of natural gas in the country was totally under the control of two PSUs viz. Oil and Natural Gas Corporation (ONGC) and Oil India Ltd. (OIL). However, with the New Exploration and Licensing Policy (NELP), private players have been allowed to participate in exploration and production of natural gas. Currently, the two PSUs still account for 83 percent of domestic gas production. Marketing of gas and pipeline infrastructure is undertaken by GAIL India Ltd. Companies such as Gujarat Gas Company Ltd.

(GGCL), Mahanagar Gas Ltd. (MGL) and Indraprastha Gas Ltd. (IGL) are engaged in distribution of gas and are regional players. Power and fertilizers are the two primary sectors which together account for close to 80 percent of the gas consumption. Besides, other sectors such as petrochemicals, sponge iron and transportation also consume natural gas. Demand for natural gas in India for 2003-04 was estimated at 98 mmscmd (million standard cubic meters per day). Against this demand, allocations made by Ministry of Petroleum and Natural Gas (MoPNG) stood at around 120 mmscmd. Currently, in India, natural gas forms 8 percent of the primary energy consumption as compared to 24 percent worldwide. According to India Hydrocarbon Vision 2025 report, demand for natural gas is expected to show a sharp rise in the future with the demand reaching to 391 mmscmd by 2024-25.

The report also expects that the share of natural gas in total energy mix to go upto 20 percent. The demand for natural gas is expected to grow at a CAGR of more than 7 percent by 2007-08. The major force behind this demand growth will be investments in power sector. Government is planning to add power generation capacity of 41,110 MW under the Tenth Plan and over 60,000 MW in the Eleventh Plan. Fertilizer sector will fuel this demand further as major players switch from naphtha to gas as feedstock.

Indian market is looking for LNG from suppliers with softer terms and conditions some of which are mentioned below:

(1) Shorter duration contracts
(2) Pricing formula
(3) Fixed price
(4) Quasi fixed Price by setting a formula
(5) Price with Floor and Ceiling Negotiated ratio of fixed elements while lowering the ratio of the crude oil-linked portion.
(6) Flexible Terms and conditions


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