Mge Final Project

The Future of Natural gas in India 2009
The Future of Natural Gas in

India
By –
Harsha Chandrahasan – F09083
Neeraj Jain – F09097
Suman Louis – F09116
Vikash Kumar Pandey – F09118
1|Page
Contents
.............................................................................................................................. 1
Contents................................................................................................................ 2
Hydrocarbon..........................................................................................................3
Natural gas............................................................................................................4
History of Natural Gas...........................................................................................4
A Brief History of Regulation..................................................................................5
Climate change and Natural Gas...........................................................................6
Natural gas processing..........................................................................................7
Storage & Transportation......................................................................................8
Uses of natural gas................................................................................................8
Power generation...........................................................................................8
Domestic use.................................................................................................8
Transportation Fuel........................................................................................8
Fertilizer.........................................................................................................9
Aviation..........................................................................................................9
Hydrogen....................................................................................................... 9
Natural gas: The Indian Scenario........................................................................10

DEMAND FORECASTING.......................................................................................14
OBJECTIVE:...........................................................................................................15
DATA SOURCES:.................................................................................................. 15
METHODOLOGY:..................................................................................................15
CALCULATION AND RESULTS:..............................................................................16
DEMAND (CONSUMPTION) FORECASTING ...........................................................16
SUPPLY FORECASTING.........................................................................................18
DEMAND SUPPLY PROJECTIONS ..........................................................................20
INFERENCES.........................................................................................................21
LIMITATIONS OF THE STUDY................................................................................23
CONCLUSION: PROBLEMS & PROSPECTS:............................................................23
2|Page
References:..........................................................................................................23
Hydrocarbon
In organic chemistry, a hydrocarbon is an organic compound consisting
entirely of hydrogen and carbon. With relation to chemical terminology, aromatic
hydrocarbons or arenes, alkanes, alkenes and alkyne-based compounds
composed entirely of carbon or hydrogen are referred to as "pure" hydrocarbons,
whereas other hydrocarbons with bonded compounds or impurities of sulphur or
nitrogen, are referred to as "impure", and remain somewhat erroneously referred
to as hydrocarbons.
Hydrocarbons are referred to as consisting of a "backbone" or "skeleton"

composed entirely of carbon and hydrogen and other bonded compounds, and
have a functional group that generally facilitates combustion.
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The majority of hydrocarbons found naturally occur in crude oil, where

decomposed organic matter provides an abundance of carbon and hydrogen
which, when bonded, can catenate to form seemingly limitless chains.
Natural gas
Natural gas is a gas consisting primarily of methane. It is found associated
with fossil fuels, in coal beds, as methane clathrates, and is created
by methanogenicorganisms in marshes, bogs, and landfills. It is an important fuel
source, a major feedstock for fertilizers, and a potent greenhouse gas.
History of Natural Gas

Natural gas is nothing new. In fact, most of the natural gas that is brought
out from under the ground is millions and millions of years old. However, it was
not until recently that methods for obtaining this gas, bringing it to the surface,
and putting it to use were developed.
Some earlier uses:-
4|Page
The Oracle at Delphi, Greece A Natural Gas A Typical

Bunsen
(1000 B.C) Streetlight (1816) Burner (1891)
A Brief History of Regulation

In 1938, the U.S. government first regulated the natural gas industry.
At the time, members of the government believed the natural gas industry to
be a 'natural monopoly'. Because of the fear of possible abuses, such as
charging unreasonably high prices, and given the rising importance of natural
gas to all consumers, the Natural Gas Act was passed. This Act imposed
regulations and restrictions on the price of natural gas to protect consumers.
In the 1970's and 1980's, a number of gas shortages and price irregularities
indicated that a regulated market was not best for consumers, or the natural
gas industry. Into the 1980's and early 90's, the industry gradually moved
towards deregulation, allowing for healthy competition and market based
prices. These moves led to a strengthening of the natural gas market, lower
prices for consumers and the discovery of more natural gas.
Today, the natural gas industry is regulated by the Federal Energy

Regulatory Commission (FERC). While FERC does not deal exclusively with
natural gas issues, it is the primary rule making body with respect to the
5|Page
minimal regulation of the natural gas industry.
Competition characterizes the natural gas industry as it is known today.

The opening up of the industry, and the move away from strict regulation, has
allowed for increased efficiency and technological improvements. Natural gas
is now being obtained more efficiently, cheaply, and easily than ever before.
However, the search for more natural gas to serve our ever growing demand
requires new techniques and knowledge to obtain it from hard-to-reach
places.
Today, the natural gas industry has existed in this country for over 100
years, and it continues to grow. Deregulation and the move toward cleaner
burning fuels have created an enormous market for natural gas across the
country. New technologies are continually developed that allow Americans to
use natural gas in new and exciting ways. With all of the advantages of
natural gas, it is no wonder it has become the fuel of choice in this country,
and throughout the world.
Climate change and Natural Gas

There are many environmental issues with energy with the largest
being climate change due predominantly to the burning fossil fuels. Global
warming and climate change due to human activity is generally accepted as
being caused by anthropogenic greenhouse gas emissions. The majority of
greenhouses gas emissions are due to burning fossil fuels with most of the rest
due to deforestation.
Natural gas is often described as the cleanest fossil fuel, producing less
carbon dioxide per joule delivered than either coal or oil and far fewer pollutants
than other fossil fuels. However, in absolute terms it does contribute
substantially to global carbon emissions, and this contribution is projected to
grow. According to the IPCC Fourth Assessment Report, in 2004 natural gas
produced about 5,300 Mt/yr of CO2 emissions, while coal and oil produced
10,600 and 10,200 respectively; but by 2030, according to an updated version of
the SRES B2 emissions scenario, natural gas would be the source of 11,000
Mt/yr, with coal and oil now 8,400 and 17,200 respectively. (Total global
emissions for 2004 were estimated at over 27,200 Mt.). In addition, natural gas
6|Page
itself is a greenhouse gas far more potent than carbon dioxide when released
into the atmosphere but is not of large concern due to the small amounts in
which this occurs.
Natural gas processing

Natural gas processing plants, or fractionators, are used to purify the
raw natural gas extracted from underground gas fields and brought up to the
surface by gas wells. The processed natural gas, used as fuel by residential,
commercial and industrial consumers, is almost pure methane and is very much
different from the raw natural gas. Raw natural gas typically consists primarily
of methane (CH4), the shortest and lightest hydrocarbon molecule.
7|Page
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 odourless, colourless, non-toxic and non-
corrosive. Hazards include flammability, freezing and
asphyxia.
Uses of natural gas
Power generation
Natural gas is a major source of electricity generation through the
use of gas turbines and steam turbines. Most grid peaking power
plants and some off-grid engine-generators use natural gas.
Domestic use
Natural gas is supplied to homes, where it is used for such purposes
as cooking in natural gas-powered ranges and/or ovens, natural
gas-heated clothes dryers, heating/cooling and central heating.
Transportation Fuel
Compressed natural gas (methane) is a cleaner alternative to
other automobile fuels such as gasoline (petrol) and diesel. As of
December 2008, the countries with the highest number of CNG
vehicles, ranked numerically,
8|Page
were Pakistan [11], Argentina, Brazil, Iran and India. The energy
efficiency is generally equal to that of gasoline engines, but lower
compared with modern diesel engines.
Fertilizer
Natural gas is a major feedstock for the production of ammonia, via
the Haber process, for use in fertilizer production.
Aviation
The advantages of liquid methane as a jet engine fuel are that it has
more specific energy than the standard kerosene mixes and that its
low temperature can help cool the air which the engine compresses
for greater volumetric efficiency, in effect replacing an intercooler.
Alternatively, it can be used to lower the temperature of the
exhaust.
Hydrogen
Natural gas can be used to produce hydrogen, with one common
method being the hydrogen reformer.
9|Page
Natural gas: The Indian Scenario
Pre-Liberalisation Era:
During the pre independence period, major part of the Indian sedimentary
basins was considered to be unfit for developing oil and natural gas resources.
There were only two major oil companies producing oil during that period: one
being the Assam Oil Company located in the north eastern part of India and the
other being the Attock Oil Company situated in the north western region. After
independence the government realised the importance of oil and natural gas for
rapid industrial development and hence while framing the Industrial policy of
1948, special consideration was given for the enhancement of this industry. Until
1955, private oil companies mainly carried out hydrocarbon exploration in India.
In 1955, the Government of India decided to develop oil and natural gas
resources in various regions of the country as part of the Public Sector
Development and subsequently an Oil and Natural Gas Directorate was formed
towards the end of 1955. This was later elevated to the position of a commission
and thus the Oil and Natural Gas Commission came into existence. In the early
70’s, the Oil and Natural Gas Commission went offshore and discovered a giant
oil field in the form of Bombay High. Subsequently, over 5 billion tonnes of
hydrocarbons, which were present in the country, were discovered. Substantial
quantities of natural gas were produced in association with crude oil production
during that period.
Until the 1980s, most of this gas was flared off because there were no
pipelines or processing facilities to bring it to customers. In the early 1980s,
large investments were made to bring gases from Bombay High and other
offshore fields ashore for use as fuel and to supply feedstock to fertilizer and
petrochemical plants, which also had to be constructed or converted to use gas.
While the utilisation of natural gas in India began in the early 1960s, the volume
of gas utilised increased significantly only in the early 1980s after gas became
available from early the Western Offshore fields. Over the decade of the 1980s,
10 | P a g e
the production of gas increased by 20% annually. By the mid-1980s, natural gas
could be delivered to facilities near Bombay and near Kandla in Gujarat. In the
mid-1990s, a 1,700-kilometer trans-India pipeline was built to link the facilities
near Bombay and Kandla to a series of gas-based fertilizer plants and power
stations.
Post-Liberalisation Era:
Post 1991, the liberalized economic policy, adopted by the Government of
India, sought to deregulate and de-license the core sectors with partial
disinvestments of government equity in Public Sector Undertakings and thus the
Oil and Natural Gas Commission was converted into the Oil and Natural Gas
Corporation (ONGC). In India, Natural Gas got attention as a fuel of importance in
the last 2 decades when the Government setup Gas Authority of India Limited to
handle the gas distribution business. Till that time, ONGC and OIL were looking
after production and distribution of natural gas. Since the last one and a half
decade, natural gas started finding a number of usages as an environment
friendly high efficiency fuel.
The distribution of natural gas reserves in the country is not uniform.

Around 75% of the gas is produced in the Western Offshore fields, with the
balance coming mostly from Gujarat and the North-Eastern States. The
production of crude oil and natural gas is currently the responsibility of two
public sector undertakings, ONGC and OIL. The Gas authority of India Ltd. (GAIL)
and OIL are engaged in transportation, distribution and marketing of natural gas.
India has aggressively explored for gas and there have been substantial
finds, especially off the coast of Andhra Pradesh. In the year 1997-98 the annual
production of natural gas was around 75 MMSCMD (Million Metric Standard Cubic
Meter per Day) and it further increased to 84 MMSCMD by the year 2001-02.
Demand for natural gas in India for 2003-04 was estimated at 98 MMSCMD. In
addition, the first deliveries of liquefied natural gas (LNG) began in early 2004.
All of these have pushed India’s gas supply to over 31 billion cubic metres (BCM)
per year.
According to government statistics, ONGC accounted for 69 percent of

natural gas production in the country in 2007. In addition, some foreign
companies participate in upstream developments in joint-ventures and
11 | P a g e
production sharing contracts (PSCs). The Government of India is keen to attract

private investment in the production, transportation, etc. of natural gas.
Contracts have been awarded for the development of some medium/small sized
fields. With the New Exploration and Licensing Policy (NELP), private players
have also been allowed to participate in exploration and production of natural
gas. Privately-owned Reliance Industries will also have a greater role in the
natural gas sector in the coming years, as a result of a large natural gas find in
2002 in the Krishna-Godavari basin. Two private sector companies and the
Municipal Corporation of Baroda are at present engaged in the distribution of the
natural gas in the domestic/commercial sector in Gujrat and Mumbai. Currently,
the two PSUs still account for 83 percent of domestic gas production. Marketing
of gas and pipeline infrastructure is undertaken by GAIL India Ltd. Companies
such as Gujarat Gas Company Ltd (GGCL), Mahanagar Gas Ltd (MGL) and
Indraprastha Gas Ltd (IGL) are engaged in distribution of gas and are regional
players. According to Oil and Gas Journal (OGJ), India had 38 trillion cubic feet
(TCF) of proven natural gas reserves as of January 2009.
With the turn of Century, the following key developments marked a key
milestone in the growth of natural gas sector as an industry:
1) Hydrocarbon Vision 2025 predicted huge demand supply gap and

emphasized the need of bridging the gap.
12 | P a g e
2) Besides, the ever growing need of Power and Fertilizer sectors,

natural gas started finding its usage also in other industries such as
petrochemicals, transportation, sponge iron, glass and ceramics.
3) A number of LNG Terminals were planned, some of which have are

now already in their construction phase.
4) New gas pipeline infrastructure started coming up.
5) E&P activities in NELP blocks started giving very encouraging

results.
6) Gas Prices were taken up for revision.
7) More number of domestic and international players started taking

interest in the sector.
All these activities put the Indian Natural Gas market firmly on the World
Energy Map and the sector started drawing attention from Infrastructure
Developers, Financial Institutions, Equipment Manufacturers, EPC Contractors,
Consultants, Management and Legal Advisors, from world over.
13 | P a g e
DEMAND FORECASTING
Demand Forecasting is the activity of estimating the quantity of a

product or service that consumers will purchase. Demand forecasting involves
techniques including both informal methods, such as educated guesses, and
quantitative methods, such as the use of historical sales data or current data
from test markets. Demand forecasting may be used in making pricing decisions,
in assessing future capacity requirements, or in making decisions on whether to
enter a new market.
The methods used for demand forecasting can be broadly classified into:
Non Statistical: These include methods like
1. Survey of buyers’ intention
2 Delphi method
3 Expert opinion
4 Collective opinion
5 Naïve models
6 Judgmental approach
Statistical Methods: This includes
1. Method of Least squares
2. Regression Analysis
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OBJECTIVE:
 To project the demand and supply for natural gas in India for the period
2009-2013.
 To analyse the results obtained.
DATA SOURCES:
 Ministry of Petroleum and Natural Gas(figures for consumption and

production)
 Secondary data (articles, reports, internet material) has been used for the
purpose of study and calculations.
METHODOLOGY:
The Method of Least Squares has been used for the purpose of study.
It is a widely used statistical technique employed to study trends in

revenue, costs, production, and other data and to investigate the relationships
among accounting and financial variables. It fits a straight line through a set of
15 | P a g e
points in such a way that the sum of the squared distances from the data points
to the line is minimized.
CALCULATION AND RESULTS:
UNITS OF GAS CONSUMPTION USED FOR THE PURPOSE OF FORECASTING
BILLION CUBIC METERES
1 BILLION CUBIC METER =2.89579 MMSCMD
DEMAND (CONSUMPTION) FORECASTING
YEAR CONSUMTION DEVIATION X2 xy

OF NATURAL
x IN x
GAS
(IN BILLION
CUBIC
METERS)
2004 31.9 -2 4 -63.8
2005 35.7 -1 1 -35.7
16 | P a g e
2006 33.8 0 0 0
2007 38.2 1 1 38.32
2008 53.03 2 4 106.06
TOTAL 192.75 10 44.88
EQUATION: y=a+bx
a=∑Y / N =192.75/5 = 38.55
b=∑xy / ∑x2 =44.8/10 = 4.5
y=a+bx CONSUMPTION IN
BILLION CUBIC METERS
2009 38.55+4.5(3) 52.05
2010 38.55+4.5 (4) 56.55
2011 38.55+4.5(5) 61.05
2012 38.55+4.5(6) 65.55
17 | P a g e
2013 38.55+4.5(7) 70.05
SUPPLY FORECASTING
YEAR PRODUCTION DEVIATION X2 xy

IN x
IN BILLION
CUBIC
METERS
2004 31.96 -2 4 -63.92
2005 31.76 -1 1 -31.76
2006 32.20 0 0 0
2007 31.55 1 1 31.55
2008 61.877 2 4 123.74
TOTAL 189.34 10 59.61
18 | P a g e
EQUATION: y=a+bx
a=∑Y / N =189.34/5 = 37.86
b=∑xy / ∑x2 =59.61/10 = 6
y=a+bx PRODUCTION IN
BILLION CUBIC METERS
2009 37.86+6(3) 55.86
2010 37.86+6(4) 61.86
2011 37.86+6(5) 67.86
2012 37.86+6(6) 73.86
2013 37.86+6(7) 79.86
19 | P a g e
DEMAND SUPPLY PROJECTIONS
20 | P a g e
INFERENCES
The calculations suggest that there could be a situation of excess
supply of natural gas in India in the coming years.
21 | P a g e
Difficult as it may be to believe, India could soon move from the

status of a gas-deficit country — even though gas accounts for only 8 per
cent of the country's primary energy consumption, against 24 per cent
globally — to a gas-sufficient one and, according to some projections,
perhaps even a gas-surplus one. Supply could equal or exceed demand if
the gas finds in the under-explored basins in the country, chiefly the
Krishna-Godavari basin, are as large as some reports suggest. If things go
to plan, Reliance Industries will in a matter of months be producing gas at
a peak of rate 80 million cubic meters of gas per day (mcmd), a figure
that could be revised upwards to 120 mcmd. This would more than double
the gas supply in the country. Other discoveries in the KG-Basin and in
other basins by the likes of Gujarat State Petronet and Oil and Natural Gas
Corporation will come through subsequently, as will gas from alternative
sources like coal bed methane.
The international economic slowdown has also shaken the outlook

for gas markets. Until 2008, it appeared that – driven by environmental,
cost and technological factors – demand in natural gas would grow
strongly in the future, supporting the huge investment that the industry
was experiencing. The slowdown has caused an overall fall in the
industrial demand for natural gas.
These would have a tempering effect on gas prices in the country,

currently ranging from a “controlled” price of $2 per million British
thermal unit (mbtu) to over $10 per mbtu for liquefied natural gas (LNG)
bought in the spot market. However, the surplus situation, even if it
occurs, would be a transitory situation, since excess supply would drive
prices down to the level where gas demand balloons and catches up with
potential supply. The lower price signal would also affect the intensity of
effort to supply, which, as in the case of all hydrocarbons, is also a
function of price. Factor in the (uncertain) impact of the price of
competing fuels on the supply of and demand for gas, and you can be
reasonably sure that any projections on gas are only indicative.
22 | P a g e
LIMITATIONS OF THE STUDY

The projections have been made based on past data, which may be
inaccurate and subjected to variations depending upon the
 Volatility of demand and supply in the period under study
 Prolongation of the global crisis
 Discovery of new reserves.
CONCLUSION: PROBLEMS & PROSPECTS:

There are few obstacles which might 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
23 | P a g e
http://www.financialexpress.com
24 | P a g e

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The Future of Natural gas in India 2009

The Future of Natural Gas in

Harsha Chandrahasan – F09083

Neeraj Jain – F09097

Suman Louis – F09116

Vikash Kumar Pandey – F09118

Natural gas: The Indian Scenario........................................................................10

Hydrocarbons are referred to as consisting of a "backbone" or "skeleton"

The majority of hydrocarbons found naturally occur in crude oil, where

History of Natural Gas

Some earlier uses:-

The Oracle at Delphi, Greece A Natural Gas A Typical

(1000 B.C) Streetlight (1816) Burner (1891)

A Brief History of Regulation

Today, the natural gas industry is regulated by the Federal Energy

minimal regulation of the natural gas industry.

Competition characterizes the natural gas industry as it is known today.

Climate change and Natural Gas

Natural gas processing

Storage & Transportation

Uses of natural gas

Natural gas: The Indian Scenario

The distribution of natural gas reserves in the country is not uniform.

According to government statistics, ONGC accounted for 69 percent of

production sharing contracts (PSCs). The Government of India is keen to attract

1) Hydrocarbon Vision 2025 predicted huge demand supply gap and

2) Besides, the ever growing need of Power and Fertilizer sectors,

3) A number of LNG Terminals were planned, some of which have are

4) New gas pipeline infrastructure started coming up.

5) E&P activities in NELP blocks started giving very encouraging

6) Gas Prices were taken up for revision.

7) More number of domestic and international players started taking

Demand Forecasting is the activity of estimating the quantity of a

Non Statistical: These include methods like

1. Survey of buyers’ intention

Statistical Methods: This includes

1. Method of Least squares

 To analyse the results obtained.

 Ministry of Petroleum and Natural Gas(figures for consumption and

It is a widely used statistical technique employed to study trends in

CALCULATION AND RESULTS:

UNITS OF GAS CONSUMPTION USED FOR THE PURPOSE OF FORECASTING

BILLION CUBIC METERES

1 BILLION CUBIC METER =2.89579 MMSCMD

DEMAND (CONSUMPTION) FORECASTING

YEAR CONSUMTION DEVIATION X2 xy

2004 31.9 -2 4 -63.8

2005 35.7 -1 1 -35.7

2007 38.2 1 1 38.32

2008 53.03 2 4 106.06

TOTAL 192.75 10 44.88

a=∑Y / N =192.75/5 = 38.55

b=∑xy / ∑x2 =44.8/10 = 4.5

2009 38.55+4.5(3) 52.05

2010 38.55+4.5 (4) 56.55

2011 38.55+4.5(5) 61.05

2012 38.55+4.5(6) 65.55

2013 38.55+4.5(7) 70.05

YEAR PRODUCTION DEVIATION X2 xy

2004 31.96 -2 4 -63.92

2005 31.76 -1 1 -31.76

2007 31.55 1 1 31.55

2008 61.877 2 4 123.74

TOTAL 189.34 10 59.61