Natural Gas Affordability for Indian Industries ( Sectorwise)

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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 world’s 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 world’s seventh largest energy producer, accounting for 2.49% of the world’s 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. India’s 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 country’s 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. World’s 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 India’s 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 Assam/AP OIL 6.8 6.8 6.8 6.8 6.8

KGD6 MA RIL 6.73 6.92 6.51 4.34 1.25

KGD6 D1 and D3 RIL 20.27 15.74 16.15 18.32 21.41

PSC BLOCKS All India Multiple 19.20 19.20 19.20 19.20 19.20

CBM Blocks Raniganj West GEECL 0.22 1.00 1.50 2.00 3.00

Total Existing Fields 121.22 117.66 118.16 118.66 119.66

New Finds

KGD6 satellite D-2, D-6, D-19, D-22 RIL 0 0 0 0 10

KGD6 satellite D-34 RIL 0 0 0 0 14.68

Deendayal KG Basin D-21 GSPC 0 10 10 10 10

Mahanadi Basin NEC-OSN-97/2 RIL 6 6 8 8

ONGC KG Basin GS 15 ONGC 1.52 1.52 1.52 1.52 1.52

ONGC KG Basin G1 ONGC 0 1.72 1.72 1.72 1.72

ONGC KG Basin KG-DWN-98/2 ONGC 0 0 0 0 25

Tapti B Series ONGC 3.44 3.44 3.44 3.44 3.44

Focus Energy RJ-ON-6 Focus 0.95 0.95 0.95 0.95 0.95

ONGC C Series- Phase III C-23, C-26 and B-12-1 ONGC 0 0 4.6 4.6 4.6

CBM Sohagpur Block CBM RIL 3.5 3.5 3.5

Raniganj East Block CBM Essar 0.50 1.00 2.00 3.00 3.00

Total New Finds 6.41 24.63 33.73 36.73 86.41

Gross Total 127.63 142.29 151.89 155.39 206.07

Table 2: Sectoral Gas Demand ( in MMSCMD) Sector 2012-13 2013-14 2014-15 2015-16 2016-17

Power 112 115 128 151 163

Fertilizer 52 83 84 90 89

City Gas 12 14 18 31 36

Industrial 17 15 16 20 21

Petrochemicals /

Refineries / Internal

Consumption

45 46 50 57 57

Sponge Iron / Steel 6 6 6 6 6

Grand Total Demand 244 279 302 356 373

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 244 279 302 356 373

Shortfall in Supply 116 137 150 201 167

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 doesn’t 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-Bijaipur-

Jagdishpur 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 small-

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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)

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

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Naphtha Imp RLNG Fuel Oil Pooled Nat Gas Dom Nat Gas

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Table 4: Urea Price with Pooled Gas and subsidy projection Particulars Unit 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

International Urea Prices (CFR India) $/MT 462 483 504 525 533 541 549 557 565 570 575

Domestic Sales Price of Urea $/MT 106 117 128 141 155 171 188 207 227 250 275

Fixed Cost of Urea Plant $/MT 41 45 50 54 60 66 72 80 88 96 106

Cost towards Fuel Price $/MT 65 72 79 87 95 105 115 127 140 153 169

Heating Norm of Urea Plants for 1 MT Gcal 6.0 5.9 5.7 5.6 5.5 5.4 5.3 5.2 5.1 5.0 4.9

Gas Required for 1 MT Kg 514 503 493 483 474 464 455 446 437 428 420

Energy Required for 1 MT mmbtu 24 23 23 22 22 21 21 21 20 20 19

Cost of Energy with Domestic Gas $/MT 100 98 100 98 96 94 93 92 90 88 87

Cost of Energy with Imported RLNG $/MT 458 470 481 491 489 487 486 484 482 477 473

Cost of Energy with Pooled Price $/MT 335 344 353 372 350 356 354 352 350 347 344

Subsidy Requirement with Domestic Gas $/MT 35 26 22 12 1 -10 -23 -35 -49 -65 -82

Subsidy Requirement with Imported RLNG $/MT 393 398 402 405 394 383 370 357 342 324 304

Subsidy Requirement with Pooled Gas $/MT 270 273 275 286 254 251 239 225 211 193 175

Lsss to India in Imports $/MT 152 166 180 185 219 224 238 252 266 280 294

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

doesn’t 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 Unit 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Demand of Urea Mton 30.1 31.3 32.6 33.8 34.8 35.9 37.0 38.1 39.2 40.3 41.4

Domestic Supply(if no extra Prod) Mton 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0 22.0

Import Requirement Mton 8.1 9.3 10.6 11.8 12.8 13.9 15.0 16.1 17.2 18.3 19.4

Cost of Imports Billion$ 3.7 4.5 5.3 6.2 6.8 7.5 8.2 9.0 9.7 10.4 11.2

Cost for Total Production in India Billion$ 11.3 12.2 13.1 14.4 14.3 15.1 15.8 16.5 17.2 17.9 18.6

Sale Price in India for total Production Billion$ 3.2 3.6 4.2 4.8 5.4 6.1 6.9 7.9 8.9 10.1 11.4

Overall Subsidy Requirement Billion$ 8.1 8.5 9.0 9.7 8.8 9.0 8.8 8.6 8.3 7.8 7.2

Cost of Production for Import substitute Billion$ 3.0 3.6 4.3 5.0 5.2 5.9 6.4 7.0 7.5 8.1 8.7

Difference between Dom Prod & Import Billion$ 0.7 0.9 1.1 1.2 1.6 1.7 1.8 2.0 2.2 2.3 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 world’s 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


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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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Naphtha Diesel Imp RLNG Fuel Oil

Pooled Nat Gas Imported Coal Dom Nat Gas Domestic Coal

18 | P a g e

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


Pooled Gas Price $/mmbtu 14.1 14.8 15.5 16.7 16 16.6 16.9 17.1 17.4 17.6 17.7

Station Heat Rate Kcal/Kwh 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800 1800

Fixed Cost of Operations $/Kwh 0.018 0.019 0.019 0.020 0.020 0.021 0.022 0.022 0.023 0.024 0.024

Fuel Cost $/Kwh 0.101 0.106 0.111 0.119 0.114 0.119 0.121 0.122 0.124 0.126 0.126

Total Breakeven Cost $/Kwh 0.119 0.124 0.130 0.139 0.135 0.140 0.142 0.144 0.147 0.149 0.151

Levelized Tariff $/Kwh 0.045 0.048 0.050 0.053 0.055 0.058 0.061 0.064 0.067 0.071 0.074

Subsidy Required $/Kwh 0.073 0.077 0.080 0.087 0.079 0.082 0.082 0.081 0.080 0.079 0.077

Subsidy Required Rs/KWh 4.04 4.22 4.39 4.76 4.37 4.49 4.48 4.43 4.41 4.34 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


Domestic Coal Prices $/mmbtu 1.72 1.89 2.08 2.29 2.52 2.77 3.04 3.35 3.68 4.05 4.46

International Coal Prices $/mmbtu 5.80 6.03 6.26 6.53 6.61 6.69 6.81 6.89 6.97 7.05 7.10



Domestic Fuel Cost/unit $/Kwh 0.01 0.01 0.01 0.02 0.02 0.02 0.02 0.02 0.03 0.03 0.03

Imp Coal Cost/unit $/Kwh 0.04 0.04 0.04 0.04 0.04 0.05 0.05 0.05 0.06 0.06 0.06

Levelized Tariff $/Kwh 0.04 0.04 0.05 0.05 0.05 0.05 0.06 0.06 0.06 0.06 0.07

Dom Coal- Breakeven $/Kwh 0.04 0.04 0.04 0.04 0.04 0.05 0.05 0.05 0.06 0.06 0.06

Imp Coal - Breakeven $/Kwh 0.06 0.06 0.07 0.07 0.07 0.07 0.08 0.08 0.09 0.09 0.10

Gain/(loss) with Dom Coal $/Kwh 0.006 0.006 0.006 0.006 0.006 0.006 0.006 0.006 0.006 0.005 0.005

Gain/(loss) with Intl Coal $/Kwh (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.02) (0.03) (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

19 | P a g e

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


Subsidy (For Pooled Gas) $/Kwh 0.07 0.08 0.08 0.09 0.08 0.08 0.08 0.08 0.08 0.08 0.08

25% of subsidy from Tariff

Increase $/Kwh 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02 0.02

Power Capacity GW 180 194 209 225 242 261 281 303 326 351 378

Coal Power % 65 64 63 62 61 60 59 58 57 56 55

Gas Power % 10 11 12 13 14 15 16 17 18 19 20

Domestic Coal Price $/MT 34 38 41 45 50 55 60 66 73 80 88

Gas Power Generation TWH 145 171 201 235 273 315 361 414 472 536 608

Coal Power Generation TWH 941 998 1058 1121 1188 1258 1333 1411 1493 1580 1671

Coal Required for Gen MMT 470 499 529 560 594 629 666 705 747 790 836

Gas Subsidy Bill $ 8.0 9.9 12.1 15.3 16.3 19.3 22.1 25.0 28.3 31.7 35.0

Coal Cess on Dom Coal $/MT 16.9 19.8 22.8 27.2 27.4 30.6 33.2 35.4 38.0 40.2 41.9

Gross Dom Coal Price $/MT 51.0 57.3 64.1 72.6 77.3 85.5 93.5 101.8 111.0 120.5 130.3

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

Savings Bill $ 48.2 51.0 53.7 56.1 58.0 57.5 57.7 56.7 54.7 52.2 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 don’t 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

20 | P a g e

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)


Doms. Coal Prices (incl CT) $/MT 51 57 64 73 77 86 94 102 111 121 130

Doms. Coal Prices (incl CT) $/mmbtu 2.6 2.9 3.2 3.7 3.9 4.3 4.7 5.1 5.6 6.1 6.6



Domestic Fuel Cost/unit $/Kwh 0.02 0.02 0.02 0.03 0.03 0.03 0.03 0.04 0.04 0.04 0.05

Breakeven Tariff $/Kwh 0.04 0.04 0.05 0.05 0.05 0.06 0.06 0.07 0.07 0.07 0.08

Tariff at 5% esclat. $/Kwh 0.04 0.04 0.05 0.05 0.05 0.05 0.06 0.06 0.06 0.06 0.07

Difference between Tariff $/Kwh (0.00) (0.00) (0.00) (0.00) (0.00) (0.00) (0.01) (0.01) (0.01) (0.01) (0.01)

Difference between Tariff Rs/Kwh (0.01) (0.06) (0.11) (0.20) (0.20) (0.26) (0.32) (0.38) (0.45) (0.51) (0.58)

Incremental tariff incr. Rs/Kwh (0.01) (0.05) (0.05) (0.08) (0.00) (0.07) (0.06) (0.06) (0.07) (0.07) (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.

21 | P a g e

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


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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Imp RLNG LPG Pooled Nat. Gas Dom Nat. Gas

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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


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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Naphtha SKO Petrol

Diesel Imp RLNG LPG

Fuel Oil Pooled Nat Gas Dom Nat Gas

23 | P a g e

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.

24 | P a g e

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


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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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Imp RLNG LPG Coking Coal Pooled Nat Gas Dom Nat Gas

25 | P a g e

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


Crude Steel Price ( Billet) $/MT 400 420 441 463 486 511 536 563 591 621 652

Specific Energy of Crude Steel Prodn. Gcal/tcs 6.1 5.9 5.7 5.5 5.3 5.1 4.9 4.6 4.5 4.5 4.5

Coking Coal Price ( CFR India) $/MT 210 217 225 234 236 239 245 247 250 254 256

Gas Required for 1 tcs Kg 526 508 489 471 453 435 417 399 387 387 387

Energy Required for 1 tcs mmbtu 24 23 23 22 21 20 19 18 18 18 18

Coking Coal Required for 1 tcs Kg 916 885 853 822 790 759 727 696 675 675 675

Cost of Energy with Coking Coal $/tcs 181 181 180 181 176 171 167 162 158 161 162

Cost of Energy with Domestic Gas $/tcs 102 98 100 96 92 89 85 82 80 80 80

Cost of Energy with Pooled Price $/tcs 343 347 351 363 335 334 325 315 310 314 317

Cost of Energy with Imported RLNG $/tcs 469 474 477 479 468 457 445 433 427 431 436

Energy Cost % of Steel Price-Coking Coal % 45 43 41 39 36 33 31 29 27 26 25

Energy Cost % of Steel Price- Dom Gas % 25 23 23 21 19 17 16 15 14 13 12

Energy Cost % of Steel Price- Pooled Gas % 86 83 80 78 69 65 61 56 53 51 49

Energy Cost % of Steel Price- Imported LNG % 117 113 108 103 96 90 83 77 72 70 67

Crude Steel production Mton 100 112 124 136 148 160 172 184 196 208 220

Coking Coal Qty Requirement (if used 100%) Mton 92 99 106 112 117 121 125 128 132 140 148

Natural Gas Required ( if used 100%) MMTPA 53 57 61 64 67 70 72 73 76 81 85

Cost of Energy with All Coking Coal Bill$ 23 27 32 37 43 49 56 64 71 77 83

Cost of Energy with All Pooled Gas Bill$ 34 39 43 49 50 53 56 58 61 65 70

Cost of Energy with 75% CC + 25% PG Bill$ 26 30 35 40 44 50 56 62 69 74 80

Net Savings over Using 100% Coal Bill$ (3) (3) (3) (3) (2) (1) 0 1 3 3 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

26 | P a g e

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 SME’s (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.


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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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Petrol Diesel Imp RLNG

Pooled Nat Gas Dom Nat Gas Reducing Diesel Subsidy

Subsidised Diesel

28 | P a g e

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


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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2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Imp RLNG Pooled Nat Gas Reducing LPG Subsidy

Subsidised SKO Reducing SKO Subsidy Subsidised LPG

Dom Nat Gas

29 | P a g e

“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.

30 | P a g e

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)


Price Sensitive Demand as per this study

Fertz. Gas Demand MMTPA 15 16 16 16 16 17 17 17 17 17 17

Power Gas Demand MMTPA 20 24 28 33 39 45 51 59 67 76 86

Steel Gas Demand MMTPA 13 14 15 16 17 17 18 18 19 20 21

Price Insensitive ( to some extent) Demand as per this study

Rich Domestic Gas MMTPA 16 18 19 19 26 27 28 30 31 33 35

Extractable LPG MMTPA 1 1 1 1 2 2 2 2 2 2 2

Refin. Gas Demand MMTPA 4 4 4 4 4 5 5 5 5 5 5

CGD Gas Demand MMTPA 3 4 5 8 9 11 12 13 15 16 17

Total Gas Demand MMTPA 55 61 67 76 84 93 101 110 121 132 145

Domestic Gas MMTPA 32 36 38 39 52 54 57 60 63 66 69

Imported LNG MMTPA 23 25 29 37 32 39 44 50 58 67 76

31 | P a g e

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)

http://www.mopng.gov.in/

http://www.pngrb.gov.in/

http://www.iea.org/

http://www.eia.gov/

http://www.fai.org/

http://www.cea.org/

http://www.gailonline.com/

http://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 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 NCV(Kcal/kg)

Naphtha 23.4 24.6 25.8 27.0 27.4 27.8 28.2 28.6 29.1 29.3 29.6 10500

SKO 22.4 23.5 24.6 25.7 26.1 26.5 26.8 27.2 27.6 27.8 28.1 10270

Petrol 21.9 23.0 24.0 25.1 25.4 25.8 26.2 26.5 26.9 27.1 27.3 11464

Diesel 21.1 22.1 23.1 24.1 24.5 24.8 25.2 25.5 25.9 26.1 26.3 10366

Imp RLNG 19.3 20.2 21.1 22.0 22.4 22.8 23.1 23.5 23.9 24.2 24.4 11750

LPG 18.3 19.1 20.0 20.9 21.2 21.5 21.8 22.1 22.4 22.6 22.8 11840

Fuel Oil 18.2 19.3 20.3 21.3 21.6 22.0 22.3 22.7 23.0 23.2 23.4 9300

Pooled Nat Gas 14.1 14.8 15.5 16.7 16.0 16.6 16.9 17.1 17.4 17.6 17.7 11750

Reducing LPG Subsidy 13.8 15.6 17.4 19.4 20.9 22.4 24.0 25.5 25.8 26.1 26.3 11840

Subsidized SKO 13.1 13.8 14.4 15.1 15.3 15.5 15.8 16.0 16.2 16.3 16.5 10270

Reducing SKO Subsidy 13.1 15.0 16.9 18.9 20.5 22.1 23.8 25.5 27.3 27.8 28.1 10270

Reducing Subs Diesel 13.0 14.8 16.6 18.6 20.1 21.6 23.2 24.8 25.9 26.1 26.3 10366

Subsidized Diesel 13.0 13.7 14.3 15.0 15.2 15.4 15.6 15.8 16.0 16.2 16.3 10366

Subsidized LPG 12.0 12.5 13.1 13.7 13.9 14.1 14.3 14.5 14.7 14.8 14.9 11840

Coking Coal 7.5 7.7 8.0 8.3 8.4 8.5 8.7 8.8 8.9 9.0 9.1 7091

Imp Thermal Coal 5.8 6.0 6.3 6.5 6.6 6.7 6.8 6.9 7.0 7.1 7.1 6667

Dom Natural Gas 4.2 4.2 4.4 4.4 4.4 4.4 4.4 4.5 4.5 4.5 4.5 11500

Domestic Coal 1.7 1.9 2.1 2.3 2.5 2.8 3.0 3.3 3.7 4.1 4.5 5000

Assumptions:

Brent Crude Projections from IEA ( International Energy Agency, 2011 review

document)

$/bbl 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Brent 110.0 115.6 121.3 126.9 128.9 130.8 132.8 134.7 136.7 137.9 139.0

33 | P a g e

Crack Spreads over Dated Brent , average of last 10 years as per table below

Cracks Spread( $/bbl)

Petrol 7.122

Naphtha -0.597

SKO 3.982

Diesel 6.984

Fuel Oil -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 2019-

24

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.

34 | P a g e

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% de-

escalation 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.

35 | P a g e

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


Domestic Gas Supply MMTPA 32 36 38 39 52 54 57 60 63 66 69

Assumed rich gas from Domestic Supply @ 50% of above

LPG Extraction from Domestic Gas efficiency @ 6%

Crude/Oil Refining Capacity in India

36 | P a g e


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+ CGD-

LPG Extracted)

LNG Import Demand = Total Gas Demand – Domestic Supply

37 | P a g e

15.0 Abbreviations

$ US Dollar

$/MT US Dollar per Metric Ton

% Percentage

APM Administered Pricing Mechanism

bbl US Barrel

BCM/y Billion Cubic Meter per year

Billion $ Billion US Dollar

CGD City Gas Distribution

CNG Compressed Natural Gas

CP Crude Price

CT Coal Tax /Coal Cess

EGOM Empowered Group of Ministers

FO Fuel Oil

FOB Free On Board

FY Financial Year

GAIL Gas Authority of India Ltd.

Gcal Giga Calories

GDP Gross Domestic Product

GP Gas Price

GW Giga Watt

IEA International Energy Association

JCC Japan Crude Cocktail

JV Joint Venture

Kcal/KWh Kilo Calories per Kilo Watt hour

Kg Kilogram

Kwh Kilo Watt Hour

LNG Liquefied Natural Gas

LPG Liquefied Petroleum Gas

mmbtu Million British thermal Unit

MMSCM Million Standard Cubic Meter

MMSCMD Million Standard Cubic Meter per Day

MMTPA Million Metric Ton Per Annum

MoPNG Ministry of Petroleum & Natural Gas

MSCM Million Standard Cubic Meter

MT Metric Ton

Mton Metric Ton

NELP New Exploration Licensing Policy

ONGC Oil and Natural Gas Corp. Ltd

38 | P a g e

PLL Petronet LNG Ltd.

PNGRB Petroleum and Natural Gas Regulatory Board

PSC Production Sharing Contract

PSU Public Sector Undertaking

RLNG Re-gasified LNG

SKO Superior Kerosene Oil

SME Small and Medium Enterprises

SPA Special Purchase Agreement

tcs ton Crude Steel

TWH Tera Watt Hours

USD US Dollar

39 | P a g e

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.

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,

0

100

200

300

400

500

600

700

800

900

Jan

-91

No

v-9

1

Sep

-92

Jul-

93

May

-94

Mar

-95

Jan

-96

No

v-9

6

Sep

-97

Jul-

98

May

-99

Mar

-00

Jan

-01

No

v-0

1

Sep

-02

Jul-

03

May

-04

Mar

-05

Jan

-06

No

v-0

6

Sep

-07

Jul-

08

May

-09

Mar

-10

Jan

-11

No

v-1

1

Urea Brent Crude

40 | P a g e

Year Brent Crude FOB Urea Prices Freight to India Urea CFR Price

$/bbl $/MT $/MT $/MT

2012 110 432 30 462

2013 116 452 31 483

2014 121 472 32 504

2015 127 492 33 525

2016 129 499 34 533

2017 131 506 35 541

2018 133 513 36 549

2019 135 520 37 557

2020 137 527 38 565

2021 138 531 39 570

2022 139 535 40 575

41 | P a g e

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.


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,

0

50

100

150

200

250

Jul-

97

Feb

-98

Sep

-98

Ap

r-9

9

No

v-9

9

Jun

-00

Jan

-01

Au

g-0

1

Mar

-02

Oct

-02

May

-03

De

c-0

3

Jul-

04

Feb

-05

Sep

-05

Ap

r-0

6

No

v-0

6

Jun

-07

Jan

-08

Au

g-0

8

Mar

-09

Oct

-09

May

-10

De

c-1

0

Jul-

11

Feb

-12

Thermal Coal Crude

42 | P a g e

Year Brent Crude FOB Coal Prices Freight to India Coal CFR Price


2012 110 124 30 153.5

2013 116 130 30 159.6

2014 121 136 30 165.7

2015 127 142 31 172.8

2016 129 144 31 174.9

2017 131 146 31 177.0

2018 133 148 32 180.1

2019 135 150 32 182.2

2020 137 152 32 184.3

2021 138 154 33 186.6

2022 139 155 33 187.8

43 | P a g e

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.


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

0

50

100

150

200

250

19

97

Q3

19

98

Q1

19

98

Q3

19

99

Q1

19

99

Q3

20

00

Q1

20

00

Q3

20

01

Q1

20

01

Q3

20

02

Q1

20

02

Q3

20

03

Q1

20

03

Q3

20

04

Q1

20

04

Q3

20

05

Q1

20

05

Q3

20

06

Q1

20

06

Q3

20

07

Q1

20

07

Q3

20

08

Q1

20

08

Q3

20

09

Q1

20

09

Q3

20

10

Q1

20

10

Q3

20

11

Q1

20

11

Q3

20

12

Q1

Coking Coal Brent Crude

44 | P a g e

Year Brent Crude FOB Coal Prices Freight to India Coal CFR Price


2012 110.0 159.9 50.0 210

2013 115.6 167.3 50.0 217

2014 121.3 174.6 50.0 225

2015 126.9 182.0 52.0 234

2016 128.9 184.5 52.0 236

2017 130.8 187.0 52.0 239

2018 132.8 189.6 55.0 245

2019 134.7 192.1 55.0 247

2020 136.7 194.7 55.0 250

2021 137.9 196.2 58.0 254

2022 139.0 197.7 58.0 256

Documents

Natural Gas Affordability for Indian Industries ( Sectorwise)