Natural gas no longer cheapest as reserves fall

Reliance Industries’ KG D6 block that promised to be a gusher of natural gas has not lived up to the expectations and Panna Mukta Tapti (PMT) fields, another significant gas source, have started declining rapidly.

While this has reduced supply, the demand for natural gas, the cheapest energy option, is rising exponentially.

The current domestic supply of gas is just over 150 million metric standard cubic metres per day (mmscmd) while the demand is close to around 225 mmscmd, said Anish De, chief executive officer, Mercados Energy Markets, an international gas consulting firm.

To meet this demand, companies are now importing more of costlier re-gassified liquefied natural gas, or R-LNG, bringing the country to a stage where natural gas is no longer the cheapest option.

With most companies passing on the costs, end-users are staring at the end of an era of low natural gas prices and the situation is not likely to change anytime in the immediate future—more likely that it will never, experts said.

While the ceiling gas price from the Panna-Mukta field is $5.73 per mmBtu, $5.57 per mmBtu for Tapti field and $4.2 per mmBtu for KG D6, the current spot price for imported LNG is $12-14 per mmBtu, which is almost 180% higher than domestic prices.

“The current gas demand is going to remain very strong and healthy and majority of it is coming from power, fertiliser and city gas distribution companies. With no major domestic gas capacity coming up for the next four years, the situation is going to be the same,” said De of Mercados.

Amitava Sengupta, former director (finance and commercial) of Petronet LNG, India’s biggest LNG importer, said both the imports and the price of LNG are expected to rise this year.

“Last year Petronet imported close to 8.6 million tonnes (mt) of LNG and this year the company would be importing 9.7 mt. While increasing demand is one of the main reasons for higher imports, even the pipeline constraints are no more there,” Sengupta, who resigned from the Petronet Board on April 18, said.

He said while it is difficult to predict the price of LNG as it is linked to crude price, it definitely will be higher since the crude is at a high.

“High price is the reason why several companies are lobbying the government for allocation of gas from domestic reserves. But in the face of falling domestic reserves, LNG is the only viable option, albeit costlier,” said a source in a city gas distribution (CGD) company.

De from Mercados said there are no better alternatives available to natural gas as shale gas is yet to incubate into reality and
naphtha is environmentally hazardous.

Recently three CGD companies in Gujarat - Adani Gas, Gujarat State Petroleum Corporation (GSPC) and Gujarat Gas — increased the price of gas, which led to protests by textile producers of Gujarat.

While GSPC increased the price from Rs18.20 per standard cubic metres (scm) to Rs21.18 per scm, Adani increased the price by around 20% to Rs24 per scm and Gujarat Gas increased it to Rs16.64 per scm.

In a note justifying the increase in price, Gujarat Gas said, “The current supplies of gas (from PMT fields) have decreased to about 50% from its supply levels at the start of 2008. On the other hand, the demand for natural gas is increasing consistently thereby widening the gap of demand - supply in its markets.”

It said the company has been left with no option but to procure more expensive R-LNG at international prices which is currently at two to three times the prevailing prices of indigenous gas available to the company.

“The projections indicate that India’s total import of LNG is estimated to witness a three-fold increase, from 48 mmscmd in 2010 to 129 mmscmd in 2015. The LNG supply is projected to reach 15 mmtpa by 2012 and 34 mmtpa by 2015,” said analyst Satish Mishra from brokerage Pinc Research in a March 23 report.
The Gujarat Gas note said the current R-LNG price is over 35% higher than the 2010 average and likely to further increase by up to 25% by the end of the year, based on projected increase in demand and high oil prices scenario.

(Source: http://www.dnaindia.com/money/report_natural-gas-no-longer-cheapest-as-reserves-fall_1536210)