Some facts about Natural Gas
Do you know that prior to Reliance KG basin gas discovery, ONGC has once declared that India has no more potential for gas?
After the Reliance KG basin discovery there is a new found enthusiasm about India having huge gas reserves, and hence the justified hype about gas.
But do you know the following:
- Similar to electricity, gas is not stored and has to be consumed right away. If only there is consumption, gas is produced otherwise it is shut
- If one has to store gas, permission needs to be taken from Petroleum & Explosives Safety organization (PESO)
- No gas based power plant in india can be a viable option at the existing electricity prices?
- City Gas Distribution (CGD) Schemes, where each household would be connected through gas pipelines will not be successful at the existing LPG prices?
- And if CGD gets deployed, do you know that whenver you move your stove you will have to take the permission from local authorities?
- Gas pipelines in India are ~12,000 Kms, while Pakistan has pipelines for about ~50,000 kms
- Govt. decides which industrial consumers can purchase gas, and even if some one is willing he will not get gas at whatever be the prices?
Each of this is a big study and involves lot of research, but the zist of the above is mentioned below:
----------------------------------------------------------------------------------------------
Gas is produced from a rig which is typically off shore i.e. in the sea and is transported all the way to the shore where it is consumed. Typical consumers for gas are power plants, Fertilizers, industrial consumers etc. What is the problem in storing gas? Requires huge huge space. Infact Compressed Natural Gas (CNG) or in another form Liquified Petroleum gas (LPG) is famous because one compresses natural gas and hence it requires less amount of space. So, typically gas is converted to liqid nature to Liquified Natural Gas (LNG) for ease of transport and then later decompressed back to its natural state as Natural Gas. Now because of the huge space required, it is preferred that gas is consumed rather than stored. Hence the whole transportation & distribution of gas is linked to the production of gas thereby ensuring that gas is consumed immediately.
Hence, any rig/production facility of gas has a forecast of the total demand for gas and accordingly they plan their production schedule. If there is very minimal demand they will simply shut their facility.
This is precisely the reason the reliance KG basin rig doesn't produce the gas at its maximum capacity.
----------------------------------------------------------------------------------------------
Gas is explosive in nature. Gas explosions in storage tanks cause huge loss to the owner and neighbourhoods and hence the need for very tight regulation. So, if any industry intends to store gas by setting up storage tanks at its site, it has to take permission from PESO(http://peso.gov.in/index.aspx) which is a Govt. organization that oversees the security of the storage tanks held at various sites. Instead many developers prefer having their storage tanks located at a site mentioned by Govt. and not on their own sites. This will provide them with lesser restrictions on safety.
--------------------------------------------------------------------------------------------
This is the kind of study that I typically do, checking the commercial viability of various plants. After the KG basin gas discovery there was huge euphoria about enough fuel becoming available for all power plants and hence a drastic reduction in overall power deficit of nation. Hence there was a mad rush in declaring gas based power plants. But slowly it started sinking into people that gas based power plants are not going to solve the issue. In-fact gas power plants are going to be a major burden to the society.
Every one knows about the status of Dabhol Power plant. This power plant was intended to solve the major power problem in maharashtra, but it actually became a waterloo for Maharashtra. At one point of time unable to bear the cost at which the power plant operates Mahrashtra State Electricity board was almost came to the verge of bankruptcy.
The cost of power procured from gas based power plants varies anywhere from Rs4.50/kWh to Rs8.00/kWh. Compare it with domestic coal based power plants which can sell power at Rs2.00/kWh to Rs4.00/kWh depending on various factors. With India getting almost 60-70% of its power from coal based power plants, how can a gas based power plant be viable.
The only positive sign is if it is compared with imported coal based power plants which sell at around Rs5.00-6.00/kWh and that too in special cases.
With these high electricity prices, gas based power plants cannot be viable.
Any power plant is obliged to consume a minim amount of fuel every day, which is a contractual obligaiton between the power developer and the fuel provider. But in case of gas which is not viable, even if the power plant doesn't run, the power plant owner is forced to pay for the fuel. This makes it even more troublesome for any one to develop a gas based power plant
PS: Get back to me if you need more details about this.
-----------------------------------------------------------------------------------------
After the recent gas discoveries, Govt. of India invited tenders to come up with CGD across 250 cities in India. There are already couple of cities in India which have CGD in place fully/partially. Surat, Delhi, Mumbai etc. When a CGD is implemented in a city, the circulation of LPG cylinders will be halted or the subsidy removed.
If one observes, govt. pays a subsidy of ~Rs 150-200 for every LPG cylinder. Hence the price of a LPG cylinder coverts to ~Rs0.6/unit heat value whereas it would have been ~Rs0.8-0/9/unit without subsidy, the unit being a benchmark used in the industry. Natural Gas through CGD will cost ~Rs0.6-0.8/unit depending on various factors.
Which consumer will feel comfortable shifting to CGD driven network if the basic commercials do not work out. Hence the debate about how to effectively minimize the impact on consumer.
Though the subsidy is gradually being phased out, with the existing political setup and the deregulated oil prices, the impact on common citizen is going to be much more.
So Govt. is treading a very careful path and the path of reforms hence is uncertain, so CGD is going to be costlier than existing LPG.
----------------------------------------------------------------------------------------------
This is an obvious phenomenon. With a gas pipeline in place, no one would want to fiddle with it and hence if any one wants to move around their gas stove inside the home, they will have to take a permission from the local authorities so that the pipeline inside the home can be modified accordingly. Hence if anyone wants to design their home, especially the kitchen area one has to pay more just to get the design approved.
In places like Delhi, the impact is going to be heavier. If some one is going to use natural gas for heating purpose then any changes in the design of home will require stringent approvals from the local authorities and hence the scope for more corruption:)
----------------------------------------------------------------------------------------------
Pakistan is way ahead than India in terms of gas infrastructure. Infact it has higher per capita gas pipeline than USA.
The reason being its proximity to Afhanistan, Iran/iraq, Turkmenistan from whom it has assured supplies of gas and lesser hurdles.
Whereas India on the other hand has huge problems in accessing gas reserves from other countries and hence the gas network is not well deployed in India. Moreover gas was a monopoly in India till the entry of Reliance and in parts Cairn. ONGC, GAIL effectively had a monopoly over gas based activities in India and hence the drive to pursue R&D or implement it effectively was always missing.
Hopefully India will catch up soon, if it is able to get access to more reserves of gas.
----------------------------------------------------------------------------------------------
Since Gas is a rare and sought after commodity, Govt. defines who gets what. Hence, if you remember the debate about pricing and allocaiton between Ambani brothers and NTPC. Given a choice, there are so many consumers who are willing to pay hefty prices to get access to gas. But since Govt. has to cater to the needs to many sectors it decided to play the role of a broker. So, Govt. decided some sectors as priority sectors and others on a secondary priority etc. through which it has directed the gas producers and consumers for sale/purchase of gas. City Gas distribution for example is not a highly profitable business. But since implementing CGD is for the better cause of the nation, Govt. has allocated a certain share of the total gas available to CGD thereby ensuring that more people are interested in implementing the same.
Comments
Gas-based power plants - the solution is using coal for IPP's & diverting the natural gas to CPP's. This way the mass-distributed power is produced at a cheaper price, while the industries migrate from liquid fuels for their captive power requirements by paying market prices for natural gas.
Govt's allocation policy - The govt should not allocate natural gas for the power sector, though it has the right to prioritise allocation to other sectors. It is a misconception that industries would be willing to pay any price for natural gas. They prefer the original APM gas anytime & do not migrate to market-priced natural gas, unless curent gas supplies are not available & they need to operate their plants.