The Future prospects of Natural Gas in

INDIA

Rajiv Gandhi Institute of Petroleum Technology

Report Submitted by:

Ankur Sachdeva- 0008
Mohit choudhary– 0026
Prem ranjan - 0030
Ravi kumar – 0033
Shailendra chaudhary - 0039
 FUTURE PROSPECTS OF NATURAL GAS IN INDIA

Natural gas, earlier considered as just a by-product of crude oil production, has now gained
significant importance as a valuable source of energy internationally. Natural gas is now gaining
prominence as the fuel of the future as it meets clean fuel requirements and is cost effective for
major industries, as compared to traditional fuels such as coal and naphtha. Gas assets in India
did not receive much attention till few years back. However, mounting oil bills and need for
cleaner fuels has necessitated the country to explore its gas potential. Supply deficit has long
been a significant feature of India’s gas market. However, coming years will become a turning
point as these constraints are now loosening up due to LNG (Liquefied Natural Gas) imports and
domestic gas finds

What is natural gas?

Natural gas is a gas consisting primarily of methane. It is found associated with fossil fuels, in
coal beds, as methane catharses, and is created by methanogenic organisms in marshes, bogs, and
landfills. It is an important fuel source, a major feedstock for fertilizers, and a potent greenhouse
gas.

It is odorless, colorless & highly inflammable.

Natural gas is often informally referred to as simply gas, especially when compared to other
energy sources such as electricity. Before natural gas can be used as a fuel, it must undergo
extensive processing to remove almost all materials other than methane. The by-products of that
processing include ethane, propane, butanes, pentanes and higher molecular weight
hydrocarbons, elemental sulfur, and sometimes helium and nitrogen.

Utilization
Natural gas is a versatile source of energy, which can be used by different sectors. Heating and
electricity generation have been the main traditional uses. Increasing environmental concerns
may lead to a greater use of natural gas in transportation. Basic uses of natural gas may be
illustrated as below.

Residential users

Residential applications are the most commonly known use of natural gas. It can be used for
cooking, washing and drying, water warming, heating and air conditioning. Domestic appliances
are increasingly improved in order to use natural gas more economically and safely. Operating
costs of natural gas equipment are generally lower than those of other energy sources.

Commercial users

Main commercial users of natural gas are food service providers, hotels, healthcare facilities or
office buildings. Commercial applications include cooling (space conditioning and refrigeration),
cooking or heating.

Industry

Natural gas is used as an input to manufacture pulp and paper, metals, chemicals, stone, clay,
glass, and to process certain foods. Gas is also used to treat waste materials, for incineration,
drying, dehumidification, heating and cooling, and cogeneration.

Power Generation
Electric utilities and independent power producers are increasingly using natural gas to provide
energy for their power plants. In general, gas fuelled power plants have
lower capital costs, are built faster, work more efficiently and emit less
pollution than other fossil fuel power plants. Technological
improvements in design, efficiency and operation of combined cycle gas
turbines and co-generation processes are favoring the use of natural gas in power generation. A
combined-cycle power plant uses waste heat to produce more electricity, while natural gas co-
generation, also called combined heat and power, produces power and heat that is useful for
industry as well as commercial users. This cogeneration reduces pollution emission considerably.

Natural Gas Vehicles (NGVs)

NGVs are natural gas powered vehicles. Natural gas can be used as a motor vehicle fuel in two
ways: as compressed natural gas (CNG), which is the most common form, and as liquefied
natural gas. Natural gas vehicles fleet accounts for about one and a half million vehicles
worldwide (according to the International Natural Gas Vehicles Association). Concerns about air
quality in most parts of the world are increasing the interest in
using natural gas as a fuel for vehicles. Cars using natural gas are
estimated to emit 20% less greenhouse gases than gasoline or
diesel cars. These vehicles are not a new technology since they
have been used since the 1930s. In many countries NGVs are
introduced to replace buses, taxis and other public vehicle fleets. Natural gas in vehicles is
inexpensive and convenient.

Fuel Cells
A fuel cell is an electrochemical device that combines hydrogen fuel and oxygen from the air to
produce electricity, heat and water. Fuel cells operate without combustion, so they are virtually
pollution free. Since the fuel is converted directly to electricity, a fuel cell can operate at much
higher efficiencies than internal combustion engines, extracting more electricity from the same
amount of fuel. The fuel cell itself has no moving parts, making it a quiet and reliable source of
power. Natural gas is one of the multiple fuels on which fuel cells can operate.

Storage & Transportation

The major difficulty in the use of natural gas is transportation and storage because of its low
density. To overcome this problem, natural gas in converted to Liquefied Natural Gas (LNG).
Liquefied natural gas or LNG is natural gas (Predominantly methane, CH4) that has been
converted temporarily to liquid form for ease of storage or
transport. Liquefied natural gas takes up about 1/600th the
volume of natural gas at a stove burner tip. It is odorless,
colorless, non-toxic and non-corrosive. Hazards include
flammability, freezing and asphyxia.

The liquefaction process involves removal of certain components, such as dust, helium, water,
and heavy hydrocarbons, which could cause difficulty downstream. The natural gas is then
condensed into a liquid at close to atmospheric pressure (Maximum Transport Pressure set
around 25 kPa (3.6 psi)) by cooling it to approximately −163 °C (−260 °F).
The reduction in volume makes it much more cost-efficient to transport over long distances
where pipelines do not exist. Where moving natural gas by
pipelines is not possible or economical, it can be
transported by specially designed cryogenic sea vessels
(LNG carriers) or cryogenic road tankers. The energy
density of LNG is 60% of that of diesel fuel.

Reserves of natural gas

It’s estimated that there are around total 175400 billion 109 Meter 3. Russia has world’s largest
natural gas reserves around 47,570 bbmtu then comes Iran with 26,370.

Data of top five countries with proven Natural gas reserves are as follows-

Russia- 47570

Iran 26370

Qatar 25,790

Saudi Arabia 6,568

United Arab Emirates 5,823

United States 5,551

India 1056(24th position)

In India recently 3 major discoveries has taken places, in K-G basin, first by GSPL in 2007then
in April 2008 Reliance strike again with great discovery of proven reserve , in Nov. 2008
ONGC claimed to strike one more gas reserve. Now after the discovery of Krishna-Godavari
(KG) basin, taking the total gas reserves in the fields to 35.5 trillion cubic feet will place India on
the 12 spot among gas producing countries, next only to Iraq (ranked 11th).
Natural gas; Indian scenario

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 and 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 (Metric
Million Standard Cubic Metres 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.

Structure

Public sector companies play a major role in oil

refineries, oil and gas pipelines and gasoline retail
outlets. Indian Oil Corporation, Bharat Petroleum and
Hindustan Petroleum together account for about 70% of
India’s refining capacity and own/franchise most
gasoline retail outlets. Gas Authority of India Ltd (GAIL) owns and operates a large gas grid.
Reliance Industries and Essar Group are the major Indian Private Sector participants. Reliance is
expanding its Jamnagar refining capacity to 60 MMTA. It is expected to be the single largest
grassroot refinery in the world. Shell has invested in refining and retail; British Gas has invested
in city gas distribution. BP, Total, Exxon Mobil and Eni are also present in India. While they are
currently in marketing lubricants, Total and BP plan to expand in other value chain segments.

Resources(E & P by) Enabling (Gas & LNG Distribution(Market & Users)
transportation)
Cairn Evolving Gas grids Marketing
ONGC Transmission player- GSPC,Indraprastha Gas,Adani
RIL GAIL,GSPC,RGTL (reliance Possible future Player
grp.)
GSPC LNG Terminal RIL
Petronet LNG Dahej User
Shell India -Hazira Power, Fertilizer, Petrochemical
Dabhol Terminal Cement etc.

Potential
India is witnessing a high GDP growth rate. Because of this, we can see rapidly growing vehicle
population which will demand better road infrastructure & thus will drive more consumption of
petroleum products. The industry is expected to grow at a CAGR of about 8% to 10%. Over 190
MMT of refining capacity is projected by 2010. Moreover, 120 MMSCMD of additional demand
for Natural Gas is expected in the next five years. Recent gas finds and increased use of gas for
power generation, petrochemicals, fertilizers and city gas distribution has forced us to increase
the production of natural gas as it will surely change the energy requirements scene of the whole
nation.

Still there are several areas of unexploited potential, including city gas distribution, LNG
(import) infrastructure – terminals, regasification and pipelines to industrial consumers. Growing
demand-supply mismatch provides opportunities for investment in the entire value chain for
petroleum (refining, product pipelines, storage and retail) and Natural Gas. For all this, India
needs an investment of $15 billion and $8 billion estimated in refining and marketing
respectively by 2010

Future projection of demand

 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 up to 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. Petroleum &
Natural Gas constitutes over 16% of GDP and includes transportation,
refining and marketing of petroleum products and gas. There was $90
billion revenue generated in FY ‘05. India has a crude oil refining
capacity of about 127 MMT. Natural gas demand was about 150 MMSCMD (2004) with only
54% being met through domestic sources. Production of petroleum products has grown at 6.5%
p.a. during the last 3 years.

The last thirty years have seen a shift in the global energy fuel mix towards an increased role for
natural gas. Attractive for its cleaner and more efficient combustion relative to other fossil fuels,
gas has assumed a significant role in power generation, industrial applications, residential
heating and in some cases as a transport fuel as well.
Natural Gas Consumption in India (2006)

Electricity Sector Demand

Within the electricity sector, natural gas competes largely with coal, and the liberalization of the
Indian coal sector, which is haltingly underway, could squelch the rise of natural gas. Such
reforms are likely to make coal a bit more expensive in India, but they will also liberalize large
new coal supplies (both from the country and through imports). Head-to-head, a competitive coal
sector will out-compete gas for most electric power applications because coal is so much cheaper
as a fuel. Failure to reform, on the other hand, could reduce available coal supplies and expand
the window of opportunity for natural gas.
 Projected Electricity Generation Mix, 2005-2025

The share of natural gas does increase from 11% to 18% of the electricity market – much of this
fuelled by the new gas supplies projected to come online by 2010 from Reliance and other
private suppliers. Natural gas assumes a large role in generating peaking power, as the model
expects that the Indian load curve will shift from base load-dominated power of today to a load
curve with greater daily variability.

Fertilizer Sector Demand

Within the domestic fertilizer industry, which uses natural gas as a primary (and highly
subsidized) feedstock, India’s fertilizer import policy is the probably the single most important
factor affecting future gas demand. While India currently maintains a domestic self-sufficiency
goal for nitrogenous fertilizer production, this policy is very costly, as it precludes much cheaper
fertilizer imports from countries where natural gas can be sourced cheaply and fertilizer sold to
India on long term contracts. Despite being a relatively high cost producer of fertilizer, India
produces essentially all of the nitrogenous fertilizer it uses – imports are limited to only meeting
unforeseen supply shortfalls. Producers in the nearby Persian Gulf can make fertilizer at less than
half the real Indian cost because cheap natural gas is abundant in the Gulf. A future shift to a
greater role for imports would dramatically reduce domestic gas consumption and lessen the
subsidy burden on the central government.

Industrial Gas Demand

For industrial users, natural gas competes with liquid (oil-based) and solid (coal-based) fuels. In
general, where gas competes with oil, firms find it cost-effective to switch if they can obtain gas
supplies.

Distribution of Industrial Gas Demand, 2006

 Industrial Natural Gas Demand Curve, 2025

The demand curve for industrial gas suggests two important findings. First, significant additional
natural gas could be consumed by the industrial sector if gas prices were low enough that gas
could compete directly with coal. That scenario would require gas prices much lower than those
seen in India today.

Second, demand for natural gas is highly inelastic at prices above about $5.00/mmbtu. This is
largely because in this price range, most switching is from oil to natural gas; even at very high
natural gas prices, gas is more economic than oil. This supports the finding that most of the
growth in gas consumption comes from refining and petrochemicals, where coal use is low.

Next figure stacks our projections for gas demand under our reference, high, and low scenarios.
These projections are meant to provide bounds on our projections of Indian gas demand. For
example, the High Gas scenario assumes stringent sulphur constraints in the power sector,
protectionist constraints on fertilizer imports, and high economic growth driving industrial gas
use. The Low Gas scenario assumes vigorous coal sector reforms, liberalized fertilizer imports,
and low economic growth slowing industrial gas demand.
 Projected Natural Gas Supplies by Suppliers

Technologies Used for Natural Gas Liquefaction

In general, there are two technological solutions that may be used for LNG plants, and these are:
1) The “open cycle” technology;
2) The “nitrogen expansion cycle” technology.
3) The “Open Cycle” Liquefaction Technology

Advantage of natural gas against other fuel

1) Natural gas is: environmentally clean

2) Natural gas is: economical and efficient
3) Natural gas: has an enviable safety record
1) Natural gas is: environmentally clean

Pollutant emissions from the industrial sector and electric utilities contribute greatly to
environmental problems in the United States. The use of natural gas to power both industrial
boilers and processes and the generation of electricity can significantly improve the emissions
profiles for these two sectors. The transportation sector (particularly cars, trucks, and buses) is
one of the greatest contributors to air pollution in the India. Emissions from vehicles contribute
to smog, low visibility, and various greenhouse gas emissions. About half of all air pollution and
more than 80 percent of air pollution in cities are produced by cars and trucks, buses, two
wheelers and three wheelers in the India. So country needs a clean fuel.

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 as pollutants. Also, with
the introduction of new 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. Because natural gas burns cleanly; it doesn't leave behind any unpleasant soot, ash,
or odors. Switching to natural gas eliminates the need for an underground storage tank--
eliminating the threat of oil spills, soil contamination and costly environmental clean-up. Or, if
the oil tank is above ground, switching to natural gas eliminates worry about spills or corrosion
of the tank. And-- there's no unsightly storage tank to clutter the appearance of the property.
Natural gas is non-toxic. If inhaled in small amounts natural gas is not poisonous or harmful to
humans. Natural gas is the cleanest of all the fossil fuels. Composed primarily of methane, the
main products of the combustion of natural gas are carbon dioxide and water vapor, the same
compounds we exhale when we breathe. Coal and oil are composed of much more complex
molecules, with a higher carbon ratio and higher nitrogen and sulfur contents. This means that
when combusted, coal and oil release higher levels of harmful emissions, including a higher ratio
of carbon emissions, nitrogen oxides (NOx), and sulfur dioxide (SO2). Coal and fuel oil also
release ash particles into the environment, substances that do not burn but instead are carried into
the atmosphere and contribute to pollution. The combustion of natural gas, on the other hand,
releases very small amounts of sulfur dioxide and nitrogen oxides, virtually no ash or particulate
matter, and lower levels of carbon dioxide, carbon monoxide, and other reactive hydrocarbons

Fossil Fuel Emission Levels

- Pounds per Billion Btu of Energy Input
Pollutant Natural Gas Oil Coal
Carbon Dioxide 117,000 164,000 208,000
Carbon Monoxide 40 33 208
Nitrogen Oxides 92 448 457
Sulfur Dioxide 1 1,122 2,591
Particulates 7 84 2,744
Mercury 0.000 0.007 0.016

2) Natural gas is: economical and efficient

Natural gas is convenient. The energy source is piped directly to the customer's facility through
the safe, efficient pipeline system. There's 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 can't be easily damaged by weather or affected by weather
conditions. In contrast, oil must be trucked to the customer's location, and truck deliveries are
susceptible to weather conditions. Cost of natural gas as compare to other fuel is very low in all
the field power production, in urea production and in transport.
Using natural gas is economical compared with other fuels in power plants

Source: - Goldman Sachs Research estimates.

Table: -Natural gas even at US$6/mmBtu is competitive for urea production

Comparison of domestic urea cost with imported urea (US$/ton)
Table: -Analysis of CNG costs vs. other auto fuels
CNG prices imply cost savings of 50%-70% over conventional auto fuels

Natural gas prices are 50% cost saving option for diesel vehicle and 70% cost saving option for
petrol vehicle.

3) Natural gas: has an enviable safety record

Natural gas are easy to transport as compare to other fuel because it transporting by pipeline that
are more safe option then other liquid gas also uninterrupted because pipeline supply is not
affected by any natural calamity like rain storm and flood. Where as other fuels are Marjory
affected by them. Natural gas not has own odorant. An odorant is added to natural gas by the
producer. When the smell of gas is detected, it signals that a leakage exists and should be fixed.
Natural gas has an excellent tradition of safety.

Major obstruction
There are few obstacles which might can hamper the growth of this sector
• Delay in gas production in Domestic field can slow the growth & help sustain the
demand at higher price.
• Absence of Exclusive on city gas projects can negatively affect the incumbent.
• Slow role out of pipe line infrastructure

References:
http://www.naturalgas.org
http://www.oilandgaseurasia.com
www.petroleum.nic.in
www.ril.com
www.goldmansach.com
www.dgh.nic.in
http://www.financialexpress.com