1.

Executive Summary
If Coal is the fuel for 19th Century, Oil is the fuel for the 20th Century, and then in all probability Natural Gas will be the fuel for 21st Century. India is facing severe energy shortage in form of Coal, and Oil prices are stubbornly high for Industries as raw material. Shortage of Fuel prompted worlds largest blackout in month of July 2012, wherein almost two consecutive days almost 600 million people of India spent almost 16-20 hours without electricity. This should ring as an alarm bell for the Indian government to mend its ways and find alternatives to ever increasing appetite for India to consume energy. In this context, Natural Gas with abundant supply within and outside India can be alternate energy which can be easily tapped, ramped up and satisfy the energy appetite of India and unleash the growth which India needs to bring almost 35-40% of its population above poverty line. But Natural Gas is costlier fuel compared to Coal but cheaper than oil historically and same parity is to continue. Hence Natural Gas prices need to study properly to find the affordability factor for Individual Industries like Fertilizer, Power, Refineries, LPG Extraction Plants, Steel Plants, City Gas Distribution. Nevertheless Coal is the cheapest form of energy but it has the widest ramifications as far as environment is concerned and health cost for people in vicinity to Coal Fired Industries, again which burdens Government, Insurance Companies, local communities with extra spend on health and environment cleaning. Whereas Natural Gas is the Cleanest hydrocarbon available in the planet till renewables take over with minimal Carbon footprint, hence this project will try to develop a model which will factor the Social Cost of using Coal vis a vis affordability of high cost fuel like Natural Gas and also look into the affordability in much publicized pooling mechanism as propounded by Natural Gas Industry in India.

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2. Introduction
2.1 Title of the Capstone Project.
The Title of Capstone Project is Secondary Research on Affordability of Natural Gas prices for Indian Industries (Sector wise)

2.2 Company Overview 2.3 Background of project & brief on the title of the project.
Natural Gas being the cleanest hydrocarbon has been the lowest consumed product in India due to non-uniform pricing across the globe (no single benchmark for Global trade), Shipping constraints, handling constraints and constraints with end users. Due to different pricing mechanism Natural Gas is available at 4.2$/mmbtu (domestic gas) to 7.5$/mmbtu (Imported Term LNG) to 12-13$/mmbtu (imported Spot LNG), hence industries find too difficult to plan their long term activity with this type of Fuel and hence they prefer long term planning with either Coal or Liquid fuels. Keeping the situation in mind, I have developed this title to see whether affordability and uniformity in pricing is possible for industries which can readily accept Natural Gas in their processes.

2.4 Objectives
To Find the Affordability Natural Gas price levels for Indian Industries (Sector wise) To find a model to ascertain Social Cost of using polluting fuels vis-a-vis Clean Fuels To merge the above two and form a uniform model for the affordability To find affordability of Natural Gas for price sensitive sectors by Cross subsidizing with more polluting Fuels/ costly imported fuels.

2.5 Need and Significance of this project

India is the worlds seventh largest energy producer, accounting for 2.49% of the worlds total annual energy production. It is the fifth largest energy consumer, accounting for about 3.45% of total energy consumption in 2004, which has been increasing by an average of 4.8% percent
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a year since 1990. The share of commercial energy in total primary energy consumption increased from 59.7% in 1980-81 to 79.3% in 2008-09. Indias GDP has grown at more than 8-8.5% during the last few years, and is expected to grow at least at 6.5-7% in the coming few years. The growth has taken place despite the huge deficit in energy infrastructure. Even today, half of the countrys population does not have access to electricity or any other form of commercial energy, and still use non-commercial fuels such as firewood, crop residues and cow dung cakes as a primary source of energy for cooking in over two thirds of households. The future growth of the country would demand a move to large scale commercial energy forms. In particular, natural gas as a clean energy source holds the highest promise for the country. Worlds resources of natural gas, although finite, are enormous. Estimates of its size continue to grow as a result of innovations in exploration and extraction techniques. Natural gas resources are widely and plentifully distributed around the globe. It is estimated that a significant amount of natural gas remains to be discovered. Natural gas has emerged as the most preferred fuel due to its inherent environmentally benign nature, greater efficiency and cost effectiveness. The demand of natural gas has sharply increased in the last two decades at the global level. In India natural gas was first discovered off the west coast in 1970s, and today, it constitutes 10% of Indias total energy consumption. Over the last decade it has gained importance as a source of energy and its share is slated to increase to about 25% of the total energy basket by 2025-2030. Production of natural gas, which was almost negligible at the time of independence, is at present at the level of around 132.83 million standard cubic meters per day (MMSCMD). The main producers of natural gas are Oil & Natural Gas Corporation Ltd. (ONGC), Oil India Limited (OIL), JVs of Tapti, Panna-Mukta and Ravva and Reliance Industries Limited (RIL) which has discovered gas in the Krishna Godavari basin at its KG D6 block in the east cost of Andhra Pradesh.

Domestic Supply and Gross Demand Situation Table 1: Domestic Natural Gas Prodn Estimates ( in MMSCMD)
Block/Field Well Operator 2012-13 2013-14 2014-15 2015-16 2016-17

Existing Fields ONGC All India ONGC 68 68 68 68 68

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OIL KGD6 KGD6 PSC BLOCKS CBM Blocks Total Existing Fields

Assam/AP MA D1 and D3 All India Raniganj West

OIL RIL RIL Multiple GEECL New Finds

6.8 6.73 20.27 19.20 0.22 121.22

6.8 6.92 15.74 19.20 1.00 117.66 0 0 10 6 1.52 1.72 0 3.44 0.95 0 1.00 24.63 142.29

6.8 6.51 16.15 19.20 1.50 118.16 0 0 10 6 1.52 1.72 0 3.44 0.95 4.6 3.5 2.00 33.73 151.89

6.8 4.34 18.32 19.20 2.00 118.66 0 0 10 8 1.52 1.72 0 3.44 0.95 4.6 3.5 3.00 36.73 155.39

6.8 1.25 21.41 19.20 3.00 119.66 10 14.68 10 8 1.52 1.72 25 3.44 0.95 4.6 3.5 3.00 86.41 206.07

KGD6 satellite KGD6 satellite Deendayal KG Basin Mahanadi Basin ONGC KG Basin ONGC KG Basin ONGC KG Basin Tapti Focus Energy ONGC C Series- Phase III CBM Sohagpur Block Raniganj East Block Total New Finds Gross Total

D-2, D-6, D-19, D-22 D-34 D-21 NEC-OSN-97/2 GS 15 G1 KG-DWN-98/2 B Series RJ-ON-6 C-23, C-26 and B-12-1 CBM CBM

RIL RIL GSPC RIL ONGC ONGC ONGC ONGC Focus ONGC RIL Essar

0 0 0 1.52 0 0 3.44 0.95 0 0.50 6.41 127.63

Table 2: Sectoral Gas Demand ( in MMSCMD)

Sector Power Fertilizer City Gas Industrial Petrochemicals / Refineries / Internal Consumption Sponge Iron / Steel Grand Total Demand 2012-13 112 52 12 17 45 6 244 2013-14 115 83 14 15 46 6 279 2014-15 128 84 18 16 50 6 302 2015-16 151 90 31 20 57 6 356 2016-17 163 89 36 21 57 6 373

Data from Planning Commission of India, XIIth Plan Document, 2012

Supply Shortfall Table 3: Supply/Demand Imbalance (in MMSCMD)

Particulars 2012-13 2013-14 2014-15 2015-16 2016-17

Domestic Supply

128

142

152

155

206

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Total Gross Demand Shortfall in Supply

244 116

279 137

302 150

356 201

373 167

Power and fertilizer sector will continue to be the main segments consuming natural gas in coming years. The power and fertilizer sector together will consume around 76-80% of the total natural gas consumed in the country. There will be huge demand for natural gas on account of shortage in coal supplies. At present the country largely relies on coal for its power generation. The coal availability in the country is severely limited on account of the issues related to environment, mining constraints, rehabilitation issues, etc. As a consequence of these factors the coal production growth in the country has been inadequate. The average growth in Coal production is 3.71 percent per annum. As compared to this in future the country would require a growth in coal supply at about 8 to 9 percent per annum. Even with captive coal mining and increased supply of imported coal, the gap is very large. Natural gas provides a plausible alternative to coal. Gas as a clean and flexible fuel is much in demand. It is understood that in the XIIth Plan period the country is likely to aim for gas based capacity addition of 5000 MW per annum. This would correspondingly require an additional 100 MMSCMD of supply by the end of the XIIth Plan period. Demand is also anticipated to grow substantially for fertilizer, industry and for city gas, all of which prefer gas over the existing options on account of environmental and economic factors.

2.6 Scope of the Project

The scope of the project is to the study of Natural Gas Prices against the Solid Fuel (Thermal Coal and Coking Coal) and Liquid Fuels (like Naphtha, Diesel, Petrol, LPG, SKO Fuel Oil) and produce a model for Affordability by factoring Social cost(for Coal) and Subsidy Cost (for Diesel/LPG/SKO).

2.7 Limitations of the Project

The Limitations of the Project are as following
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 Commodities Price projections have been done on basis of available past data and guidance of International Energy Agency and may not be correct in long run. This project doesnt looks into the project development pace in LNG Re-gas Terminals, which can become a bottleneck for using Natural Gas in big way. Reliance Industries Limited has requested EGOM (Empowered Group of Ministers) that Petronet LNG pricing with Ras Gas from 2014 to be made benchmark for Domestic Gas price. In that case pooling mechanism will have no validity and such grand scale usage and affordability of Natural Gas cannot be achieved.

3.0 Research Methodology

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The Research Methodology is Secondary Research; Primary Data for this research has been collected from following sources International Energy Association for Crude Price Projections Platts.com for historical Crack spreads for Petroleum products Term LNG Price Formula between Gorgon LNG and Petronet LNG for Long term Imported LNG prices Domestic Natural Gas prices based on RIL formula for KG D6 Gas with suitable Caps escalation on 5 years basis (Assumption of Upper Cap from present 60$ for Crude price to 100$ for 2014-19 and 120$ for 2019-2024) . Platts Metal Report for Crude Steel Prices XIIth and XIII th Plan Document of Planning Commission of India Historical Saudi CP Prices for LPG crack spreads over Crude Price Regression Analysis for Thermal Coal, Coking Coal and Urea Prices with respect to Brent Crude Prices. Energy is measured in mmbtu which makes economics calculation against alternate fuel easy. Same concept is used to find the economics for alternate fuel i.e. For Fertilizer Industry, Naphtha can be replaced with Natural Gas, For Power Plants though Thermal Coal plants cannot be physically converted to Natural Gas based, but economics worked out against Thermal Coal separately, again Natural Gas can replace those power plants which run on Naphtha or Diesel, For Steel Plant Natural Gas can replace Coking Coal requirement, For LPG Extraction , Natural Gas can replace LPG substitution directly in home usage and also Propane and Butane Extraction from Domestic Natural Gas economics worked upon, For CGD, affordability for transport fuel worked against Motor Spirit/Gasoline and Diesel. After finding the Affordability levels, a model prepared to ascertain the social cost of using Coal and the Subsidy cost of using liquid fuels factored to arrive at the correct affordable rates for each industry.

4.0 Natural Gas Industry and Pricing

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Natural gas is a scarce resource in India and Govt. of India plays an important role in its allocation. Historically, gas has been allocated in priority to end-users such as fertilizer producers and power plants. In 2007, the Govt. of India started working on a new Gas Utilization Policy. This was mostly a consequence of the dispute between the Ambani brothers and the related issues on gas pricing and utilization, which created a very hot debate in India. In 2007, a price was agreed between RIL and the government under the PSC so that RIL was to sell gas at USD 4.2/ Million British thermal units for the first five years of production. This price level, often reported, reflects the calculation under a formula linking the price of gas to the price of oil: GP = 2.5 + (OP 25) ^0.15 Where, OP is the annual average Brent crude price for the previous FY, with a cap of USD 60/bbl and a floor of USD 25/bbl. Since 2007, the annual Brent price has always been above USD 60. This and the large gap between demand and available supplies prompted the government to develop a Gas Utilization Policy and to go back to administrative control over prices (Govt. of India introduced a price formula for all discoveries under the first six NELP rounds) and over volumes to be allocated to end-consumers. Therefore, in 2008, the government introduced Natural Gas in India new guidelines called the Gas Utilization Policy, which effectively took away gas producers' rights to sell the gas they discover on the open market. These guidelines would be applicable for the next five years and be reviewed afterwards. The recent ruling of the Supreme Court in May 2010 regarding the dispute between RIL (Reliance Industries Ltd.) and RNRL (Reliance Natural Resources Ltd.), reaffirms the role of the government in the allocation and pricing of gas. Currently, the rules of the General Policy for the gas market imply that gas will be allocated according to industry-wise priorities set up by the government. This does not imply that the gas is reserved: if one customer is not in a position to take the gas, the next one on the list becomes eligible. Existing users have priority over Greenfield users. The gas is allocated as follows:

For Existing customers:

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 Fertilizer producers LPG and petrochemicals Power plants City Gas Distribution (CGD) Refineries Others For Greenfield users: Fertilizer producers Petrochemicals City Gas Distribution (CGD) Refineries Power plants The above lists clearly show the preference for fertilizer producers, petrochemicals and power plants as first category customers. CGD usually comes in second position. Govt. of India gave priority to power generators and fertilizer producers, making them the major customers supplied at the lowest rate (Administered Pricing Mechanism prices decided by the government) by the state-owned oil and gas companies. Industrial users, which are interested in switching to gas, do not have access to low-priced gas resources and have to pay higher prices to private companies and LNG importers. This makes sense when gas is more economical than the fuel they use (for example naphtha). This situation has changed with the increase of APM (Administered Pricing Mechanism) prices to USD 4.2/ Million British thermal units in May 2010. Regulations for Pricing Downstream Gas Historically, gas markets were entirely serviced by PSU with prices determined by the central government. From 1987 to 2005, production and transport prices were fixed by the Empowered Group of Ministers (EGOM). The APM mechanism for oil was formally phased out in 2002, but most of the gas produced by ONGC and OIL and distributed by GAIL continues to be sold at APM prices. In 2006, the regulator PNGRB was created to set up the bases for a competitive market and has been developing regulations since then. In the transmission sector, Govt. of India wishes to develop a policy concerning the approval of pipeline construction that would be consistent, market-friendly, and would help avoid
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duplication of gas transport routes. In December 2006, the monopoly on transmission networks for GAIL was abolished enabling other companies to build and operate networks. The regulator PNGRB set up the Access Code requiring third-party access for one third of the capacity and setting the tariffs of transportation for third parties. PNGRB has therefore to determine tariffs for existing pipelines as well as for pipelines authorised by the government (before PNGRB was created). Typically, transport along the Hazira-BijaipurJagdishpur pipeline costs USD 0.58/Million British thermal units; GAIL proposed to charge USD 0.88/MBtu for its 572 km-long Dahej-Uran-Panvel pipeline. For its 1400 km-long East-West pipeline (EWPL), RGTIL (Reliance Gas Transportation Infrastructure Ltd.) opted for a two-zone tariff and wanted to charge USD 0.3-0.4/MBtu for the first zone and USD 1.25/MBtu for the second zone. Current Pricing Mechanism in India The natural gas pricing scenario in India is complex and heterogeneous in nature. There are wide varieties of gas price in the country. At present, there are broadly two pricing regimes for gas in the country - gas priced under APM and non-APM or free market gas. The price of APM gas is set by the Government. As regards non-APM/free market gas, this could also be broadly divided into two categories, namely, domestically produced gas from JV fields and imported LNG. The pricing of JV gas is governed in terms of the PSC (Production Sharing Contract) provisions. It is expected that substantial gas production would commence from the gas fields awarded by the Government under the New Exploration Licensing Policy (NELP). As regards LNG, while the price of LNG imported under term contracts is governed by the SPA (Special Purchase Agreement) between the LNG seller and the buyer, the spot cargoes are purchased on mutually agreeable commercial terms. APM (Administered Pricing Mechanism) Gas Pricing

APM gas refers to gas produced by entities awarded gas fields prior to the PSC regime. The prices of gas from these fields are administered by Govt. of India. In 2005, the price of APM gas of ONGC and OIL was revised. Based on recommendations of the Tariff Commission, the Cabinet Committee on Economic Affairs decided that APM gas prices would be increased. All available APM gas would be dedicated to power generators, fertilizers as well as specific end users covered by Court orders and small10 | P a g e

scale consumers having allocations up to 0.05 MCM/day. At that time, ONGC and OIL produced about 55 MCM/day APM gas from nominated fields. The Government raised the consumer price be revised from Rs. 2,800/MMSCM to Rs. 3,200/MMSCM with effective from July 1st 2005 for the following categories of consumers. It was also decided that all the APM gas will be supplied to only these categories. Power sector Fertilizers sector Cons covered under court order Consumers Allocation less than 0.05 MMSCMD This increase was on an ad hoc basis and it was decided that the Tariff Commission would examine the issue of producer price of natural gas. The Tariff Commission (TC) has since submitted its report and has recommended Producer price of Rs.3710/MSCM and Rs.4150/MMSCM for ONGC and OIL respectively. TC has also recommended that the consumer price should be somewhat higher than the producer price, considering the substantial difference between the recommended producer price and the price of market gas/alternative fuels. Govt. of India also decided that the price of gas supplied to small consumers and transport sector (CNG) would be increased over the next 3 to 5 years to the level of the market price. With effect from May 6th 2005, the APM gas price to small consumers and CNG sector has been increased by 20% to bring it to Rs.3840 / MSCM. The price of natural gas for customers in the North-East has been kept at 60% of the price in the rest of the country. Accordingly, the price for power and fertilizers sector in the North- East is Rs.1920/MMSCM and that for court-mandated and small scale consumers in the region is Rs.2304/MMSCM. APM gas prices for the transport sector (CNG), small industries and consumers would be progressively increased from INR 3 200/1 000m3 (USD 1.79/MMBtu) over the following years to reflect the market price. As they became the second category after fertilisers and power producers, small users/CNG saw prices increasing from INR 3 200/1000m3 (USD 1.79/MMBtu) to INR 3 840/1 000m3 (USD 2.15/MMBtu) in 2006 (INR 2 304/1 000m3 in the North East).

Pricing of Gas under Pre-NELP Production Sharing Contracts (PSC)

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Production Sharing Contracts (PSCs) were executed by GOI with Ravva consortium and PMT (Panna Mukta Tapti) consortium on October 28, 1994 and December 12, 1994 respectively. The price of natural gas is determined by the provisions of PSC signed by the consortium with GOI. Around 17.3 MMSCMD, 1 MMSCMD and 0.9 MMSCMD are supplied from PMT fields, Ravva fields and Ravva Satellite fields respectively under the pre- NELP PSCs. Out of this, GAIL supplies 5 MMSCMD from PMT fields and the production (1 MMSCMD) from Ravva fields at APM rate to APM consumers; the difference between PSC price and APM price is being made up through the gas pool account mechanism.

Pricing of Gas with reference to NELP Provisions

As regards the gas from NELP fields, the Government constituted an Empowered Group of Ministers to consider inter alia issues relating to pricing of natural gas, produced under the NELP regime. It has been decided therein that the provisions of the NELP PSC should be honoured. The following price basis/formula for the purpose of valuation of natural gas has been approved by the Government in case of KG-D6 Block of RIL/Niko.

Selling price (in US $/MMBTU) = 2.5 + (CP-25) ^0.15 (in US$/MMBTU),

where CP=crude price in US$/barrel, with cap of CP=US $60/barrel. The price basis/formula comes to US$4.2/MMBTU for crude price greater or equal to US $60/barrel. It was decided that price discovery process on arm's length basis will be adopted in the future NELP contracts, only after the approval of the price basis/formula by the Government.

Import Gas (LNG) Pricing

A contract was signed with RasGas, Qatar for supply of 5 MMTPA LNG (equivalent to about 18 MMSCMD) by Petronet LNG Limited (PLL) and supplies commenced from April 2004. This quantity has subsequently increased to 7.5 MMTPA effective from January 2010. The price for LNG has been linked to JCC crude oil under an agreed formula. However, the FOB price for the period up to December 2008 has been agreed at a
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constant price of $2.53/MMBTU. This price translates to RLNG price of $3.63/MMBTU ex-Dahej terminal. The price would vary on monthly basis from January 2009. Further, in July 2007, PLL has signed another contract with RasGas, Qatar for supply of 1.25 MMTPA LNG from July 2007 to September 2009 to meet the requirement of Ratnagiri Power Project in Maharashtra. In order to make the price of spot RLNG affordable, EGoM has decided in the meeting held on January 11th 2007 for pooling of prices of spot cargoes with LNG being imported on term contract basis. This Ministry accordingly issued orders on March 6th 2007 in compliance with the decision of EGoM. In addition to the above term contracts, LNG is also being sourced from spot market by PLL and Hazira LNG Pvt. Ltd. During 2011-02, an average quantity of about 5.7 MMTPA was brought into the country as spot cargoes. MoPNG also allowed ONGC and OIL to market gas produced by them at market rates. ONGC was given permission to sell gas from its C-series fields in Mumbai offshore at USD 5.25/MBtu, even higher than KG-D6. These fields are expected to produce 1 BCM/y. On top of gas produced domestically, LNG has become an increasing part of the supply mix of India. The current LNG prices for the two operating terminals are the following:

Long-term contract with Gorgon LNG Project For twenty years, Petronet LNG signed an agreement with Gorgon LNG at the following levels for 1.44 MMTPA FOB price Per MMBTU FOB Price = 14.85 X JCC Price Add Transportation @ Approx 2$/mmbtu from Australia to Kochi. This Agreement has been the Costliest imported LNG agreement signed by India till date and hence all Imported LNG and Pooled Gas price Imported LNG Components is based on this formula. Pricing Issues The pricing issue in India has always been quite complex. Firstly, APM gas supplies have been declining while non-APM gas saw a dramatic increase in volume and share but they also started falling with KG D6 supplies dwindling. Furthermore, APM and Non APM gas has been allocated in priority to power producers and fertilizers, two sectors expected to see their demand increasing over the coming decade. While the Ministry of Petroleum and Natural Gas has been pushing for higher prices
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to limit losses from the PSU, this has met with strong resistance from the Ministry of Power and Ministry of Chemicals and Fertilizers. The subsidies to fertilizers have already multiplied by five over the last five years to reach INR 900 Billion (USD 18.0 billion) in 20011/12.

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5.0 Natural Gas Affordability levels for Fertilizer Industry

India is net importer of Fertilizer due to skewed policy in India, the local capacity built up hindered due to subsidy issues and no clear road map, but India is forced to import Fertilizer from International market at almost 700$/MT ( at peak in Sep 2008 before Global recession ) to present levels of 432$/MT ( FOB July 2012). These costlier imports are drain to exchequer and increasing the fiscal deficit. The Alternate fuel for Fertilizer industry is Fuel Oil or Naphtha. Also one more issue of Fertilizer Industry is controlled price of its main output i.e. Urea and subsidy to manufacturer to sell Urea below the manufacturing cost. A chart for the Alternate Competitive Fuels, which is as below
Chart 1: Long Term Price Projections of Competing Fuel ($/mmbtu)
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Naphtha Imp RLNG Fuel Oil Pooled Nat Gas Dom Nat Gas

It is evident from the chart above that due to shortage of Domestic Natural Gas Availability in India; the best alternate fuel will be Pooled Natural Gas (i.e. Bundling of Domestic and Imported RLNG and thereby finding Weighted Average price). The Cost of Urea on FOB basis in India is roughly Rs 5841/- per MT which translates into $106 per MT. The Affordability rate of Natural Gas for this price is as below in the table
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Table 4: Urea Price with Pooled Gas and subsidy projection

Particulars International Urea Prices (CFR India) Domestic Sales Price of Urea Fixed Cost of Urea Plant Cost towards Fuel Price Heating Norm of Urea Plants for 1 MT Gas Required for 1 MT Energy Required for 1 MT Cost of Energy with Domestic Gas Cost of Energy with Imported RLNG Cost of Energy with Pooled Price Subsidy Requirement with Domestic Gas Subsidy Requirement with Imported RLNG Subsidy Requirement with Pooled Gas Lsss to India in Imports Unit $/MT $/MT $/MT $/MT Gcal Kg mmbtu $/MT $/MT $/MT $/MT $/MT $/MT $/MT 2012 462 106 41 65 6.0 514 24 100 458 335 35 393 270 152 2013 483 117 45 72 5.9 503 23 98 470 344 26 398 273 166 2014 504 128 50 79 5.7 493 23 100 481 353 22 402 275 180 2015 525 141 54 87 5.6 483 22 98 491 372 12 405 286 185 2016 533 155 60 95 5.5 474 22 96 489 350 1 394 254 219 2017 541 171 66 105 5.4 464 21 94 487 356 -10 383 251 224 2018 549 188 72 115 5.3 455 21 93 486 354 -23 370 239 238 2019 557 207 80 127 5.2 446 21 92 484 352 -35 357 225 252 2020 565 227 88 140 5.1 437 20 90 482 350 -49 342 211 266 2021 570 250 96 153 5.0 428 20 88 477 347 -65 324 193 280 2022 575 275 106 169 4.9 420 19 87 473 344 -82 304 175 294

Considering the above table, to keep on importing from international market compared to produce the same in India with Pooled Gas is comparatively cheaper, moreover with more manufacturing units India can have more add on social benefits like Job Creation etc. If India doesnt add Urea Plants due to shortage of Domestic Natural Gas, then it will have to shell out almost cumulatively 17.8 billion $ extra to import Fertilizer from outside India and subsidize for its usage for next 10 years. Table 5: Imported Urea vis a vis Domestic Production
Particulars Demand of Urea Domestic Supply(if no extra Prod) Import Requirement Cost of Imports Cost for Total Production in India Sale Price in India for total Production Overall Subsidy Requirement Cost of Production for Import substitute Difference between Dom Prod & Import Unit Mton Mton Mton Billion$ Billion$ Billion$ Billion$ Billion$ Billion$ 2012 30.1 22.0 8.1 3.7 11.3 3.2 8.1 3.0 0.7 2013 31.3 22.0 9.3 4.5 12.2 3.6 8.5 3.6 0.9 2014 32.6 22.0 10.6 5.3 13.1 4.2 9.0 4.3 1.1 2015 33.8 22.0 11.8 6.2 14.4 4.8 9.7 5.0 1.2 2016 34.8 22.0 12.8 6.8 14.3 5.4 8.8 5.2 1.6 2017 35.9 22.0 13.9 7.5 15.1 6.1 9.0 5.9 1.7 2018 37.0 22.0 15.0 8.2 15.8 6.9 8.8 6.4 1.8 2019 38.1 22.0 16.1 9.0 16.5 7.9 8.6 7.0 2.0 2020 39.2 22.0 17.2 9.7 17.2 8.9 8.3 7.5 2.2 2021 40.3 22.0 18.3 10.4 17.9 10.1 7.8 8.1 2.3 2022 41.4 22.0 19.4 11.2 18.6 11.4 7.2 8.7 2.4

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6.0 Natural Gas Affordability levels for Power Industry

Indian power sector is very much dependent on Coal and almost 65% of generation is now is Coal based, but even though Coal India Ltd, the worlds largest Coal miner is unable to maintain the pace of Coal requirement for India. Demand Elasticity is generally 1.1 times of the GDP growth, the present base Capacity of power plants is roughly 180 GW, which translates into almost 8GW of power addition per year to maintain a GDP growth of 7-7.5% year on year. Though Coal is the cheapest fuel available in the planet but it has lot of environmental issues and specific handling issues in India due to lot of imports will require very high investment in Port infrastructure and Rail infrastructure, in place of that Natural Gas partially will be better alternatives. There have been few power plants using liquid fuel also like Naphtha, Diesel, and Fuel Oil (FO) etc. A chart for the competing fuels is enclosed below
Chart 2: Long Term Price Projections of Competing Fuel ($/mmbtu)
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2012 2013 Naphtha Pooled Nat Gas 2014 2015 Diesel Imported Coal 2016 2017 2018 Imp RLNG Dom Nat Gas 2019 2020 Fuel Oil Domestic Coal 2021 2022

It is evident from the chart that Domestic Coal is cheapest (though availability is an issue), Imported Coal is the next best (infrastructure issues to handle the same), followed

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by Domestic Gas (But availability is an issue), hence the next best alternative is the Pooled Gas. We will now study the affordability of Pooled Gas Price Table 6: Power Tariff with Pooled Gas and subsidy projection
Particulars Pooled Gas Price Station Heat Rate Fixed Cost of Operations Fuel Cost Total Breakeven Cost Levelized Tariff Subsidy Required Subsidy Required Unit $/mmbtu Kcal/Kwh $/Kwh $/Kwh $/Kwh $/Kwh $/Kwh Rs/KWh 2012 14.1 1800 0.018 0.101 0.119 0.045 0.073 4.04 2013 14.8 1800 0.019 0.106 0.124 0.048 0.077 4.22 2014 15.5 1800 0.019 0.111 0.130 0.050 0.080 4.39 2015 16.7 1800 0.020 0.119 0.139 0.053 0.087 4.76 2016 16 1800 0.020 0.114 0.135 0.055 0.079 4.37 2017 16.6 1800 0.021 0.119 0.140 0.058 0.082 4.49 2018 16.9 1800 0.022 0.121 0.142 0.061 0.082 4.48 2019 17.1 1800 0.022 0.122 0.144 0.064 0.081 4.43 2020 17.4 1800 0.023 0.124 0.147 0.067 0.080 4.41 2021 17.6 1800 0.024 0.126 0.149 0.071 0.079 4.34 2022 17.7 1800 0.024 0.126 0.151 0.074 0.077 4.22

Now to foot this subsidy there can be two options, put a small Coal Cess on the Coal power generated so that both Coal and Gas generation remains viable and increase the Tariff suitably. To Calculate the Coal Cess/Tax we need to see the attractiveness of Coal Power generation which is shown below Table 7: Power Tariff with Domestic and International Coal projections
Particulars Domestic Coal Prices International Coal Prices Station Heat Rate Fixed Cost of Operations Domestic Fuel Cost/unit Imp Coal Cost/unit Levelized Tariff Dom Coal- Breakeven Imp Coal - Breakeven Gain/(loss) with Dom Coal Gain/(loss) with Intl Coal Unit $/mmbtu $/mmbtu Kcal/Kwh $/Kwh $/Kwh $/Kwh $/Kwh $/Kwh $/Kwh $/Kwh $/Kwh 2012 1.72 5.80 2500 0.02 0.01 0.04 0.04 0.04 0.06 0.006
(0.02)

2013 1.89 6.03 2500 0.02 0.01 0.04 0.04 0.04 0.06 0.006
(0.02)

2014 2.08 6.26 2500 0.03 0.01 0.04 0.05 0.04 0.07 0.006
(0.02)

2015 2.29 6.53 2500 0.03 0.02 0.04 0.05 0.04 0.07 0.006
(0.02)

2016 2.52 6.61 2500 0.03 0.02 0.04 0.05 0.04 0.07 0.006
(0.02)

2017 2.77 6.69 2500 0.03 0.02 0.05 0.05 0.05 0.07 0.006
(0.02)

2018 3.04 6.81 2500 0.03 0.02 0.05 0.06 0.05 0.08 0.006
(0.02)

2019 3.35 6.89 2500 0.03 0.02 0.05 0.06 0.05 0.08 0.006
(0.02)

2020 3.68 6.97 2500 0.03 0.03 0.06 0.06 0.06 0.09 0.006
(0.02)

2021 4.05 7.05 2500 0.03 0.03 0.06 0.06 0.06 0.09 0.005
(0.03)

2022 4.46 7.10 2500 0.03 0.03 0.06 0.07 0.06 0.10 0.005
(0.03)

It is evident from Table 7, that though Domestic Coal is marginally profitable, but imported Coal operations is not profitable at present tariff levels and also future tariff
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levels which generally increases at 5% level year on year. Hence the attractiveness is for Domestic Coal Generation only, though availability of the same is not certain. To incentivize industry to go for Gas based generation, a Coal Cess or Coal Tax can be levied considering the Social harm it does to the environment. The Coal Cess should not make Coal Cost more than International prices. Table 8: Calculation of Coal Cess/Tax to incentivize Gas Power Generation
Particulars Subsidy (For Pooled Gas) 25% of subsidy from Tariff Increase Power Capacity Coal Power Gas Power Domestic Coal Price Gas Power Generation Coal Power Generation Coal Required for Gen Gas Subsidy Coal Cess on Dom Coal Gross Dom Coal Price Imported Coal Price ( CFR) Savings Unit $/Kwh $/Kwh GW % % $/MT TWH TWH MMT Bill $ $/MT $/MT $/MT Bill $ 2012 0.07 0.02 180 65 10 34 145 941 470 8.0 16.9 51.0 153.5 48.2 2013 0.08 0.02 194 64 11 38 171 998 499 9.9 19.8 57.3 159.6 51.0 2014 0.08 0.02 209 63 12 41 201 1058 529 12.1 22.8 64.1 165.7 53.7 2015 0.09 0.02 225 62 13 45 235 1121 560 15.3 27.2 72.6 172.8 56.1 2016 0.08 0.02 242 61 14 50 273 1188 594 16.3 27.4 77.3 174.9 58.0 2017 0.08 0.02 261 60 15 55 315 1258 629 19.3 30.6 85.5 177.0 57.5 2018 0.08 0.02 281 59 16 60 361 1333 666 22.1 33.2 93.5 180.1 57.7 2019 0.08 0.02 303 58 17 66 414 1411 705 25.0 35.4 101.8 182.2 56.7 2020 0.08 0.02 326 57 18 73 472 1493 747 28.3 38.0 111.0 184.3 54.7 2021 0.08 0.02 351 56 19 80 536 1580 790 31.7 40.2 120.5 186.6 52.2 2022 0.08 0.02 378 55 20 88 608 1671 836 35.0 41.9 130.3 187.8 48.1

The basis of above table is that, there is a widening Gap between Domestic Coal prices and International Coal prices, hence due to immense shortage of Domestic Coal, the Capacity Mix for Coal Power needs to be progressively brought down from 65% at present to 55% by next decade and increase the Gas Power in the Capacity mix from 10% at present to 20% by next decade. If we dont do the same, as it is we have to progressively rely upon imported Coal, but again Coal plants on a lifecycle pollutes almost 2.5 times compared to Gas based plants, hence why not use this gap between international Coal prices and domestic Coal prices to fund the use of imported LNG ( after pooling it with domestic Gas). , This operations will be win-win situation for Gas based Industry, General Consumer and the environment at large. The savings accrued by not using Imported Coal cumulative is 594 billion $ (Notional Value) over the domestic
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coal with Coal Cess on top of it. 25% Subsidy for Gas Based plants can be achieved by increasing the Tariff for Gas based plants suitably and 75% of subsidy can be provided by putting a Coal Tax ( CT) or Coal Cess in $/MT for all Domestic Coal Sold in India ( to de-incentivize usage of Coal). The Below Table finds the Breakeven Tariff for such arrangement Table 9: Breakeven Tariff Calculation for Domestic Coal Generation (including Coal Tax)
Particulars Doms. Coal Prices (incl CT) Doms. Coal Prices (incl CT) Station Heat Rate Fixed Cost of Operations Domestic Fuel Cost/unit Breakeven Tariff Tariff at 5% esclat. Difference between Tariff Difference between Tariff Incremental tariff incr. Unit $/MT $/mmbtu Kcal/Kwh $/Kwh $/Kwh $/Kwh $/Kwh $/Kwh Rs/Kwh Rs/Kwh 2012 51 2.6 2500 0.02 0.02 0.04 0.04 (0.00) (0.01) (0.01) 2013 57 2.9 2500 0.02 0.02 0.04 0.04 (0.00) (0.06) (0.05) 2014 64 3.2 2500 0.03 0.02 0.05 0.05 (0.00) (0.11) (0.05) 2015 73 3.7 2500 0.03 0.03 0.05 0.05 (0.00) (0.20) (0.08) 2016 77 3.9 2500 0.03 0.03 0.05 0.05 (0.00) (0.20) (0.00) 2017 86 4.3 2500 0.03 0.03 0.06 0.05 (0.00) (0.26) (0.07) 2018 94 4.7 2500 0.03 0.03 0.06 0.06 (0.01) (0.32) (0.06) 2019 102 5.1 2500 0.03 0.04 0.07 0.06 (0.01) (0.38) (0.06) 2020 111 5.6 2500 0.03 0.04 0.07 0.06 (0.01) (0.45) (0.07) 2021 121 6.1 2500 0.03 0.04 0.07 0.06 (0.01) (0.51) (0.07) 2022 130 6.6 2500 0.03 0.05 0.08 0.07 (0.01) (0.58) (0.07)

As evident from above, meager 1 paise to 58 paise Increase in Tariff over a period of 10 years, will ensure that Breakeven Cost is achievable even with Coal Tax/Cess.

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7.0 Natural Gas Affordability levels for LPG Extraction

LPG is extracted generally from Domestic rich gas with has Propane and Butane fractions in fractionators, GAIL India Ltd, usually extracts around 1 MMTPA of LPG through this process, Indian LPG demand is ever increasing, but India is also importing LNG, hence if we are able to import rich LNG, we can further extract LPG from it and save precious foreign exchange. The competing fuels for LPG extraction is as below
Chart 3: Long Term Price Projections of Competing Fuel ($/mmbtu)
30.0 25.0 20.0 15.0 10.0 5.0 0.0 2012 2013 2014 2015 LPG 2016 2017 2018 2019 2020 2021 2022 Imp RLNG Pooled Nat. Gas Dom Nat. Gas

It is evident from the chart, that domestic Gas is most competitive source for LPG extraction followed by Pooled Natural Gas. LPG extraction ratio from Natural gas depends upon the availability of Propane and Butane ends in the Natural Gas. 80-85% LPG consumed for Kitchen use in India, Natural Gas can directly substitute LPG, but that requires huge investment in Pipelines, Local Grid and other facilities. PNGRB has come up with ambitious project of putting CGD networks for 300 cities and towns of India, which will drastically reduce the LPG consumption in India in long run,.

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8.0 Natural Gas Affordability levels for Oil Refineries

Oil Refineries generally refines Crude Oil and produces different types of Petroleum products, each having unique usage and pricing patterns due to Supply/ Demand and Quality. Refineries generally use 10% of their inputs as energy cost for running the Refinery Captive Power Plants, Process heating, and Boilers etc. Hence it is very important for them to select the right fuel mix to minimize the cost and maximize the profit. As Refinery has access to all types of Liquid fuels because they are producing in the complex, the decision to use a particular fuel stems from usability of such fuel and revenue it can earn from selling out to customers, as Gasoline/Petrol is one of the premium product in market and getting maximum realization, you will seldom see refineries using Gasoline as their fuel Source. A chart has been prepared for all the competing fuels
Chart 4: Long Term Price Projections of Competing Fuel ($/mmbtu)
35.0 30.0 25.0 20.0 15.0 10.0 5.0 0.0 2012 2013 2014 Naphtha Diesel Fuel Oil 2015 2016 SKO Imp RLNG Pooled Nat Gas 2017 2018 2019 Petrol LPG Dom Nat Gas 2020 2021 2022

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As evident from the Chart, Domestic Natural Gas and Pooled Natural Gas price is way above economical for refinery to use as fuel for their Refineries. Though in India, this realization is gaining strength with refineries as Refining Margin are hurling down from 10-12$/bbl to nowadays 5-6$/bbl. Also the difference between the Sweet Crude (i.e. Brent) and Sour Crude ( like Maya Crude) is narrowing down, which will further bring down the refining margin for complex refineries which are processing cheap crude (discount to sweet Crudes) and able to manage healthy Refining Margins.

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9.0 Natural Gas Affordability levels for Steel Plants

In India, Steel Plants have range of Options starting from Coking Coal (Different from thermal Coal in Power Industry), Natural Gas, Propane (LPG) and Liquid Fuels. Steel Plants concentrated on Western part of India, have access to Natural Gas, but Steel plants in Central, Southern and Eastern part of India is devoid of Natural Gas access. The Steel Industry in India consumes almost 10% of electricity generated and 27% of Coal used by Indian Industry. The Price of Steel is not controlled by Govt of India, but being a commodity, goes up and down as per International market. The price fluctuations in last 5 years have been at peak 1000$/MT to present 370 $/MT. Also there is also scope of Value addition which again follows a different market compared to other commodities. The Competing Fuels are shown in the chart below
Chart 5: Long Term Price Projections of Competing Fuel ($/mmbtu)
30.0 25.0 20.0 15.0 10.0 5.0 0.0 2012 2013 2014 LPG 2015 2016 2017 2018 2019 2020 2021 2022 Imp RLNG Coking Coal Pooled Nat Gas Dom Nat Gas

Coking Coal prices are more than Thermal Coal, hence they are costlier than Domestic Gas as alternatively. As Steel Plants are very low in priority in Allocation of Domestic Gas (as their Output price i.e. Price of Crude Steel) is not regulated, hence they will always find difficult to get allocation of Domestic Gas. Also India itself is importing almost 75% requirement of Coking Coal (at present total requirement at 40 MMTPA) from International market and with Steel production to double in next 10years from
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present 100 MMTPA to 220 MMTPA, more and more Coking Coal needs to be imported and %age of Imports will also increase as recoverable reserves in India for Coking Coal is very limited. It is assumed that if 85% of the requirement of Coking Coal has to be imported in 2022, then the Quantity will be almost 126 Million Ton; this Quantity will be on top of Thermal Coal Imports. The Better Alternative is to use Pooled Natural Gas over a period of time to mitigate the situation of huge and unmanageable imports, the following table looks into a model to make usage of 75% Coking Coal with 25% Pooled Gas as one option Table 10: Steel Price Projection and Energy Cost
Particulars Crude Steel Price ( Billet) Specific Energy of Crude Steel Prodn. Coking Coal Price ( CFR India) Gas Required for 1 tcs Energy Required for 1 tcs Coking Coal Required for 1 tcs Cost of Energy with Coking Coal Cost of Energy with Domestic Gas Cost of Energy with Pooled Price Cost of Energy with Imported RLNG Energy Cost % of Steel Price-Coking Coal Energy Cost % of Steel Price- Dom Gas Energy Cost % of Steel Price- Pooled Gas Energy Cost % of Steel Price- Imported LNG Crude Steel production Coking Coal Qty Requirement (if used 100%) Natural Gas Required ( if used 100%) Cost of Energy with All Coking Coal Cost of Energy with All Pooled Gas Cost of Energy with 75% CC + 25% PG Net Savings over Using 100% Coal Unit $/MT Gcal/tcs $/MT Kg mmbtu Kg $/tcs $/tcs $/tcs $/tcs % % % % Mton Mton MMTPA Bill$ Bill$ Bill$ Bill$ 2012 400 6.1 210 526 24 916 181 102 343 469 45 25 86 117 100 92 53 23 34 26 (3) 2013 420 5.9 217 508 23 885 181 98 347 474 43 23 83 113 112 99 57 27 39 30 (3) 2014 441 5.7 225 489 23 853 180 100 351 477 41 23 80 108 124 106 61 32 43 35 (3) 2015 463 5.5 234 471 22 822 181 96 363 479 39 21 78 103 136 112 64 37 49 40 (3) 2016 486 5.3 236 453 21 790 176 92 335 468 36 19 69 96 148 117 67 43 50 44 (2) 2017 511 5.1 239 435 20 759 171 89 334 457 33 17 65 90 160 121 70 49 53 50 (1) 2018 536 4.9 245 417 19 727 167 85 325 445 31 16 61 83 172 125 72 56 56 56 0 2019 563 4.6 247 399 18 696 162 82 315 433 29 15 56 77 184 128 73 64 58 62 1 2020 591 4.5 250 387 18 675 158 80 310 427 27 14 53 72 196 132 76 71 61 69 3 2021 621 4.5 254 387 18 675 161 80 314 431 26 13 51 70 208 140 81 77 65 74 3 2022 652 4.5 256 387 18 675 162 80 317 436 25 12 49 67 220 148 85 83 70 80 3

Both the Import requirements of Natural Gas and Coking Coal is at Staggering 148 MMTPA and 85 Million ton if used exclusively as fuel for Steel Plants, but the option of using both the Fuel sources, will mitigate the handling of any one Commodity to its fullest, the Net Savings will progressively become positive and these intermediate years Govt to Subsidize the Pooled Natural Gas price. As the domestic availability of Coking

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Coal is very limited, we cannot put Coal Tax unlike for Power Sector and fund the subsidy for Natural Gas in this case.

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10.0 Natural Gas Affordability levels for CGD

CGD or City Gas Distribution is the low pressure Natural Gas distribution in Cities. Generally Cities have two grids; one is very low pressure at 4-6 Kg/cm2 for domestic Kitchen use and other at 18-19 kg/cm2 for SMEs (Small and Medium Enterprises) like Hotels, Restaurants, Small Factories, and CNG Pumps etc. As the name suggest, there is no competing fuels for CGD other than Natural Gas itself and different sources, like Domestic Natural Gas, Imported RLNG and Pooled Natural Gas. However the same when used as transportation fuel do replace Gasoline/Motor Spirit/Petrol or Diesel/Gasoil. Hence the below chart shows the competing fuels for Transportation Use.
Chart 6: Long Term Price Projections of Competing Fuel ($/mmbtu)
30.0 25.0 20.0 15.0 10.0 5.0 0.0 2012 2013 2014 2015 2016 Diesel Dom Nat Gas 2017 2018 2019 2020 2021 2022 Petrol Pooled Nat Gas Subsidised Diesel Imp RLNG Reducing Diesel Subsidy

It is evident from the chart that most affordable option for CGD (Transportation Fuel) is domestic Gas, but again availability is an issue and next best option is Subsidized Diesel, at present 38% subsidy of Rs 15.66 per litre is there in Diesel, the Subsidized Diesel is projected for 10 years based on 38% subsidy to international Diesel Prices. The Third best option is Pooled Natural Gas in CGD for transportation Use. A study also done,
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based on Govt of India plan to progressively reduce diesel subsidy and merge the same with international prices, same has been shown against Reducing Diesel subsidy. Hence if the plan of reducing subsidy becomes a reality, then Pooled Natural Gas will be the most economical for CGD as transportation fuel. The other option of CGD is fuel for domestic use like Kitchens. The competing fuels for the same is shown in a chart below
Chart 7: Long Term Price Projections of Competing Fuel ($/mmbtu)
30.0 25.0 20.0 15.0 10.0 5.0 0.0 2012 2013 Imp RLNG Subsidised SKO Dom Nat Gas 2014 2015 2016 2017 2018 2019 2020 2021 2022 Pooled Nat Gas Reducing SKO Subsidy Reducing LPG Subsidy Subsidised LPG

It is evident from the chart that most affordable option for CGD (Domestic Fuel) is domestic Gas, but again availability is an issue and next best option is Subsidized SKO, at present 41% subsidy of Rs 29.77 per litre is there in SKO, the Subsidized SKO is projected for 10 years based on 41% subsidy to international SKO Prices. The Third best option is Subsidized LPG, at present 35% subsidy of Rs 16.26 per Kg is there in LPG, the Subsidized SKO is projected for 10 years based on 35% subsidy to international LPG Prices. A study also done, based on Govt of India plan to progressively reduce SKO and LPG subsidy and merge the same with international prices, same has been shown against
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Reducing SKO subsidy and Reducing LPG Subsidy. Hence if the plan of reducing subsidy becomes a reality, then Pooled Natural Gas will be the most economical for CGD as Domestic fuel. Even Imported LNG will gain parity over LPG and SKO after 2017 if the assumption of 5% reduction envisaged for subsidy on year on year basis.

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11.0 Conclusion
The conclusion can be drawn as following to the above study: The Demand of Sectors like Fertilizer. Power and Steel can be ascertained properly on basis on the available production projections, this type of demand is price sensitive demand, The combine Gas required as per the above plan for the three sectors is enumerated below. The Demand of Sectors like CGD, Refineries and LPG extraction is difficult to measure as, CGD depends upon the number of cities under Distribution Network, Refineries demand depends upon conformity to Gas as fuel in Refinery process and LPG Extraction depends upon availability of rich gas. This type of demand is Price ( Insensitive Demand) .Though an assumption has been made and following analysis done , which is physically possible to achieve Table 11: Gas Demand as per above study (Sector Wise)
Particulars Unit 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Price Sensitive Demand as per this study Fertz. Gas Demand Power Gas Demand Steel Gas Demand MMTPA MMTPA MMTPA 15 20 13 16 24 14 16 28 15 16 33 16 16 39 17 17 45 17 17 51 18 17 59 18 17 67 19 17 76 20 17 86 21

Price Insensitive ( to some extent) Demand as per this study Rich Domestic Gas Extractable LPG Refin. Gas Demand CGD Gas Demand Total Gas Demand Domestic Gas Imported LNG MMTPA MMTPA MMTPA MMTPA MMTPA MMTPA MMTPA 16 1 4 3 55 32 23 18 1 4 4 61 36 25 19 1 4 5 67 38 29 19 1 4 8 76 39 37 26 2 4 9 84 52 32 27 2 5 11 93 54 39 28 2 5 12 101 57 44 30 2 5 13 110 60 50 31 2 5 15 121 63 58 33 2 5 16 132 66 67 35 2 5 17 145 69 76

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12.0 References and Bibliography

Steelmart.com for Historical US FOB Coking Coal Prices Indexmundi.com for historical Dated Brent Crude Price, Urea prices, Australian Thermal Coal FOB prices Pooling Document by Mercados EMI, for GAIL India Ltd. Platts.com for Crack spreads historical Argus.com for reference MOPNG Website (www.mopng.gov.in) PNGRB Website ( www.pngrb.gov.in) The International Crude Oil Market , Handbook, Energy Intelligence Research Coal India ltd Website IEA Website ( www.iea.org) EIA Website (www.eia.gov) Fertilizer Association of India ( www.fai.org) Central Electricity Authority ( www.cea.org) GAIL Website (www.gailonline.com) SAIL Website ( www.sail.co.in)

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13.0 List of Charts

The list of Charts from No1 to 7 is based on $/mmbtu for the competing fuels, the data for such charts is tabulated below
Product Naphtha SKO Petrol Diesel Imp RLNG LPG Fuel Oil Pooled Nat Gas Reducing LPG Subsidy Subsidized SKO Reducing SKO Subsidy Reducing Subs Diesel Subsidized Diesel Subsidized LPG Coking Coal Imp Thermal Coal Dom Natural Gas Domestic Coal 2012 23.4 22.4 21.9 21.1 19.3 18.3 18.2 14.1 13.8 13.1 13.1 13.0 13.0 12.0 7.5 5.8 4.2 1.7 2013 24.6 23.5 23.0 22.1 20.2 19.1 19.3 14.8 15.6 13.8 15.0 14.8 13.7 12.5 7.7 6.0 4.2 1.9 2014 25.8 24.6 24.0 23.1 21.1 20.0 20.3 15.5 17.4 14.4 16.9 16.6 14.3 13.1 8.0 6.3 4.4 2.1 2015 27.0 25.7 25.1 24.1 22.0 20.9 21.3 16.7 19.4 15.1 18.9 18.6 15.0 13.7 8.3 6.5 4.4 2.3 2016 27.4 26.1 25.4 24.5 22.4 21.2 21.6 16.0 20.9 15.3 20.5 20.1 15.2 13.9 8.4 6.6 4.4 2.5 2017 27.8 26.5 25.8 24.8 22.8 21.5 22.0 16.6 22.4 15.5 22.1 21.6 15.4 14.1 8.5 6.7 4.4 2.8 2018 28.2 26.8 26.2 25.2 23.1 21.8 22.3 16.9 24.0 15.8 23.8 23.2 15.6 14.3 8.7 6.8 4.4 3.0 2019 28.6 27.2 26.5 25.5 23.5 22.1 22.7 17.1 25.5 16.0 25.5 24.8 15.8 14.5 8.8 6.9 4.5 3.3 2020 29.1 27.6 26.9 25.9 23.9 22.4 23.0 17.4 25.8 16.2 27.3 25.9 16.0 14.7 8.9 7.0 4.5 3.7 2021 29.3 27.8 27.1 26.1 24.2 22.6 23.2 17.6 26.1 16.3 27.8 26.1 16.2 14.8 9.0 7.1 4.5 4.1 2022 29.6 28.1 27.3 26.3 24.4 22.8 23.4 17.7 26.3 16.5 28.1 26.3 16.3 14.9 9.1 7.1 4.5 4.5 NCV(Kcal/kg)
10500 10270 11464 10366 11750 11840 9300 11750 11840 10270 10270 10366 10366 11840 7091 6667 11500 5000

Assumptions: Brent Crude Projections from IEA ( International Energy Agency, 2011 review document)
$/bbl Brent 2012 110.0 2013 115.6 2014 121.3 2015 126.9 2016 128.9 2017 130.8 2018 132.8 2019 134.7 2020 136.7 2021 137.9 2022 139.0

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 Crack Spreads over Dated Brent , average of last 10 years as per table below
Cracks Petrol Naphtha SKO Diesel Fuel Oil Spread( $/bbl) 7.122 -0.597 3.982 6.984 -7.962

For LPG , Avg of last 5 years Saudi CP price over Dated Brent at 51.223$/MT LPG defined as 40% Propane and 60% Butane. Monthly Saudi CP prices checked for last 5 years for Propane and Butane and Dated Brent and ratio as per above considered for Crack Spread. Energy Calculations based on the following conversions 1 Kcal/Kg = 1.799989 btu/lb = 3.968297 btu/kg Domestic Gas Price based on RIL formula Price = 2.5+ (CP- 25) ^0.15, CP = Crude Price CP has cap of 60$ for 2009-2014, assumed 100$ cap for 2014-19 and 120$ cap for 201924 Imported LNG Price on Petronet LNG and Gorgon LNG Formula FOB Australia Price of LNG = 14.85% of Crude Price Add , 2$ for Transportation for 2012 with 1% escalation, 1 $ for Regas for 2012 with 5% escalation to CFR RLNG Prices. Pooled Gas Price on ratio of Domestic and RLNG prices year on year as per demand. Domestic Coal Prices based on present Coal India prices with 34 $ /MT with 5% escalation year on Year Imported Thermal Coal prices based on Australian Thermal Coal CFR India historical prices in tandem with Brent Crude Prices., through Linear Regression analysis. Imported Coking Coal prices based on US Coking Coal CFR India historical prices in tandem with Brent Crude Prices., through Linear Regression analysis.

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14.0 List of Tables

The Assumptions/Source for the above table is as below: 1. Table 1: Domestic Natural Gas Production Estimates ( in MMSCMD) Data Sourced from MoPNG, DGH Websites and Press Briefs 2. Table 2: Sectoral Gas Demand ( in MMSCMD) Data sourced from XII th Plan Report on Energy by Planning Commission of India 3. Table 3: Supply/Demand Imbalance (in MMSCMD) Difference between Table 1 and Table 2. 4. Table 4: Urea Price with Pooled Gas and subsidy projection Assumptions International Urea Prices ( 21 years linear regression analysis of historical Brent Crude Prices and historical International Urea Prices and projecting the same for future Brent Prices for 2012-22) Domestic Sales Price: Current Price of 106$/MT (1$= Rs 55), with 10% escalation each year. Fixed Cost of Urea Plant = As per present Benchmark of FAI ( Fertilizer Association of India ) at 41$/MT followed by 10% escalation each year Heating Norm of Urea Plant: 5.97 Gcal per MT of Urea for 2012, with 2% deescalation year on year till 2022. Calorific Value of Natural Gas = 43161 btu/kg 5. Table 5: Imported Urea vis a vis Domestic Production Urea demand for 2012-22, based on IIM Ahmedabad and Planning commission document. Other as per Table 4. 6. Table 6: Power Tariff with Pooled Gas and subsidy projection Assumptions Station Heat Rate: 1800 Kcal/Kwh or 1800 Kcal/Unit, as per CEA (Central Electricity Authority) Guidelines for Heat Rate for Gas based power plants. Fixed Cost of Operations: Rs 1 per MW as per CEA Guidelines for Gas Based Power Plants with 3% escalation each year.
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7. Table 7: Power Tariff with Domestic and International Coal projections Assumptions Station Heat Rate: 2500 Kcal/Kwh or 2500 Kcal/Unit, as per CEA (Central Electricity Authority) Guidelines for Heat Rate for Thermal Coal based power plants. Fixed Cost of Operations: Rs 1.3 per MW as per CEA Guidelines for Thermal Coal Based Power Plants with 3$ escalation each year 8. Table 8: Calculation of Coal Cess/Tax to incentivize Gas Power Generation Assumptions & Data Source Power Capacity: 180 GW for 2012 as per CEA Website, with 7.7% escalation each year to sustain 7% GDP Growth. Coal Power Capacity: 65% of 180 MW as per CEA Website in 2012 Gas Power Capacity: 10% of 180 MW as per CEA Website in 2012 9. Table 9: Breakeven Tariff Calculation for Domestic Coal Generation (incl. CT) Assumptions As Above 10. Table 10: Steel Price Projection and Energy Cost Crude Steel Prices : 400 $/MT as per Platts Steel data with 5% escalation on year on year basis Specific Energy of Crude Steel Plant: As per present SAIL data at 6.1 Gcal/tcs, to be de-escalated as per govt directive to reach 4.5 Gcal/tcs by 2020. 11. Table 11: Gas Demand as per above study (Sector Wise) All the assumptions as above 4 MMSCMD of RLNG = 1 MMTPA of LNG 220 GW power Generation with 1 MMSCMD gas Domestic Gas Supply
Particulars Domestic Gas Supply Unit MMTPA 2012 32 2013 36 2014 38 2015 39 2016 52 2017 54 2018 57 2019 60 2020 63 2021 66 2022 69

Assumed rich gas from Domestic Supply @ 50% of above LPG Extraction from Domestic Gas efficiency @ 6% Crude/Oil Refining Capacity in India

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Particulars

Unit

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Crude Ref. Cap

MMTPA 217 238 239 240 256 275 279 282 289 308 323

Gas Demand for Refineries assumed at 0.14 MMSCMD for 1 MMTPA of refining Again Gas consuming facilities assumed to be available in 70% of Refining Capacity. CGD Gas demand as per GOI , XIIth and XIII th Plan Document. Total Gas Demand = Gas Demand ( Fertilizer + Power + Steel+ Refinery+ CGDLPG Extracted) LNG Import Demand = Total Gas Demand Domestic Supply

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15.0 Abbreviations
$ $/MT % APM bbl BCM/y Billion $ CGD CNG CP CT EGOM FO FOB FY GAIL Gcal GDP GP GW IEA JCC JV Kcal/KWh Kg Kwh LNG LPG mmbtu MMSCM MMSCMD MMTPA MoPNG MSCM MT Mton NELP ONGC
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US Dollar US Dollar per Metric Ton Percentage Administered Pricing Mechanism US Barrel Billion Cubic Meter per year Billion US Dollar City Gas Distribution Compressed Natural Gas Crude Price Coal Tax /Coal Cess Empowered Group of Ministers Fuel Oil Free On Board Financial Year Gas Authority of India Ltd. Giga Calories Gross Domestic Product Gas Price Giga Watt International Energy Association Japan Crude Cocktail Joint Venture Kilo Calories per Kilo Watt hour Kilogram Kilo Watt Hour Liquefied Natural Gas Liquefied Petroleum Gas Million British thermal Unit Million Standard Cubic Meter Million Standard Cubic Meter per Day Million Metric Ton Per Annum Ministry of Petroleum & Natural Gas Million Standard Cubic Meter Metric Ton Metric Ton New Exploration Licensing Policy Oil and Natural Gas Corp. Ltd

PLL PNGRB PSC PSU RLNG SKO SME SPA tcs TWH USD

Petronet LNG Ltd. Petroleum and Natural Gas Regulatory Board Production Sharing Contract Public Sector Undertaking Re-gasified LNG Superior Kerosene Oil Small and Medium Enterprises Special Purchase Agreement ton Crude Steel Tera Watt Hours US Dollar

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16.0 Annexure -1
Urea price Regression Analysis wrt Crude Prices Data from Jan 1991 to July 2012 month wise plotted as below for Brent Crude in $/bbl and Urea FOB prices in $/MT.
900 800 700 600 500 400 300 200 100 0 May-94 May-99

Mar-00 Jan-01

Jul-03 May-04

May-09

Mar-95

Nov-01

Jul-98

Mar-05

Mar-10

Jan-91

Jan-96

Jan-06

Sep-92

Sep-97

Sep-02

Sep-07

Nov-91

Nov-96

Nov-06

Jan-11

Jul-93

Jul-08

Urea

Brent Crude

We got the following Linear Regression equation Where Y= Urea FOB Price, X= Brent Crude Price Y= 42.3786 + 3.5434* X When Future Brent Crude Prices were plotted against this equation, we got,

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Nov-11

Year

Brent Crude $/bbl

FOB Urea Prices $/MT 432 452 472 492 499 506 513 520 527 531 535

Freight to India $/MT 30 31 32 33 34 35 36 37 38 39 40

Urea CFR Price $/MT 462 483 504 525 533 541 549 557 565 570 575

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

110 116 121 127 129 131 133 135 137 138 139

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Annexure-2
Australian FOB Thermal Coal Price Regression Analysis wrt Crude Prices Data from Jul 1997 to July 2012 month wise plotted as below for Brent Crude in $/bbl and Australian FOB Thermal Coal prices in $/MT.
250

200

150

100

50

0 Jul-97 Feb-98 Sep-98 Apr-99 Nov-99 Jun-00 Jan-01 Aug-01 Mar-02 Oct-02 May-03 Dec-03 Jul-04 Feb-05 Sep-05 Apr-06 Nov-06 Jun-07 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Thermal Coal Crude

We got the following Linear Regression equation Where Y= Australian Thermal Coal FOB Price, X= Brent Crude Price Y= 4.885693 + 1.078506* X When Future Brent Crude Prices were plotted against this equation, we got,

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Year

Brent Crude $/bbl

FOB Coal Prices $/MT 124 130 136 142 144 146 148 150 152 154 155

Freight to India $/MT 30 30 30 31 31 31 32 32 32 33 33

Coal CFR Price $/MT 153.5 159.6 165.7 172.8 174.9 177.0 180.1 182.2 184.3 186.6 187.8

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

110 116 121 127 129 131 133 135 137 138 139

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Annexure-3
USA FOB Coking Coal Price Regression Analysis wrt Crude Prices Data from Third Quarter 1997 to July 2012 Quarterly Wise plotted as below for Brent Crude in $/bbl and USA FOB Coking Coal prices in $/MT.

250

200

150

100

50

0 1997 Q3 1998 Q1 1998 Q3 1999 Q1 1999 Q3 2000 Q1 2000 Q3 2001 Q1 2001 Q3 2002 Q1 2002 Q3 2003 Q1 2003 Q3 2004 Q1 2004 Q3 2005 Q1 2005 Q3 2006 Q1 2006 Q3 2007 Q1 2007 Q3 2008 Q1 2008 Q3 2009 Q1 2009 Q3 2010 Q1 2010 Q3 2011 Q1 2011 Q3 2012 Q1 Coking Coal Brent Crude

We got the following Linear Regression equation Where Y= USA Coking Coal FOB Price, X= Brent Crude Price Y= 16.67165 + 1.302348* X When Future Brent Crude Prices were plotted against this equation, we got

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Year

Brent Crude $/bbl

FOB Coal Prices $/MT

Freight to India $/MT

Coal CFR Price $/MT

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

110.0 115.6 121.3 126.9 128.9 130.8 132.8 134.7 136.7 137.9 139.0

159.9 167.3 174.6 182.0 184.5 187.0 189.6 192.1 194.7 196.2 197.7

50.0 50.0 50.0 52.0 52.0 52.0 55.0 55.0 55.0 58.0 58.0

210 217 225 234 236 239 245 247 250 254 256

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