India seeks a future in gas

India is poised to transform its power sector away from coal and imported oil. International partnerships have been set up and there are firm plans are in place to increase the nation's pipeline capacity.

Cooking gas cylinders on their way to consumers in Mumbai. Some analysts predict the country could become self-sufficient in gas within a decade.

India, a big fuel importer, might seem a natural destination for liquefied natural gas (LNG) from Qatar, but until this year such imports have not materialised.

Late last month, Qatargas and Royal Dutch Shell announced they had loaded their first cargo of liquefied natural gas (LNG) from the Qatargas 4 project. It was bound for India's west coast terminal of Hazira.

The development not only marked the culmination of Qatar's plans to become the world's biggest LNG exporter, with 77 million tonnes of annual production capacity, but also represented a vote of confidence in India's recent progress with its gas grid.

India is poised to transform its power sector away from coal and imported oil towards cleaner-burning natural gas with the help of newly discovered gas reserves and infrastructure.

"The mix will shift toward natural gas," says Manu Srivastava, the director of gas at India's energy ministry. "There's so much hunger for power and energy."

The country's lack of pipelines and import terminals, however, has prevented it from taking full advantage of the recent glut of gas on world markets. But things are changing.

Analysts and industry insiders say India needs to develop nationwide gas distribution capacity to back long-term supply agreements with major LNG suppliers such as Qatar. Until this year, however, there were few signs its government was serious about attracting investment for the five major pipeline projects needed to connect India's various regional gas pipeline systems.

"The gas market is driven by a pipeline network. That is a must," says A K Balyan, the chief executive and managing director of India's Petronet LNG. "We do not have a countrywide gas pipeline network and grid."

But now firm ministry plans are in place to increase India's trunk pipeline capacity by 50 per cent to 16,323km by the end of next year.

That could help India to capitalise on its proximity to Qatar. The Qatargas 4 project in particular was developed with the aim of opening up markets for Qatar's LNG sector.

"It is therefore fitting that its first cargo should go to India, a market with significant potential for LNG," says Andy Brown, the executive vice president of Shell.

Beyond importing more gas, India is seeking to boost domestic gas production and add new reserves.

At the end of 2009, the nation's proved gas reserves stood at a respectable 39.4 trillion cubic feet, slightly more than those of the Netherlands, which has large North Sea gas reserves.

Output of 3.8 billion cubic feet per day was India's highest in a decade, surpassing that of Turkmenistan, a major gas exporter with the world's fourth largest reserves.

An increasing number of analysts see this as the tip of the iceberg. Some predict India could become self-sufficient in gas within a decade, following the recent example of the US, which in the past five years has swung from regarding gas as a scarce national commodity to converting LNG import terminals into export facilities.

The problem is that new gas output in India would probably not come from conventional gas deposits that are easy to produce, but from unconventional resources such as deep gas, shale gas and coal-bed methane.

It would take decades for India to develop the home-grown expertise needed to exploit such challenging resources by itself, so it needs help from international partners.

Such help is on the way. Last month, just as Qatargas 4 launched its first LNG cargo towards India, BP and India's Reliance Industries, the country's largest private-sector conglomerate, struck a US$7.2 billion (Dh26.44bn) deal aimed at developing promising deepwater gas prospects in the Krishna-Godivari basin off India's east coast.

BP will take a 30 per cent interest in the 23 oil and gas oil and gas blocks to which Reliance holds the title. All but one, an onshore coal bed methane prospect, lie in water ranging from 400 metres deep to more than 3km in an offshore area about the size of New Zealand. The two companies will also form an alliance to market the gas in India.

In total, BP and Reliance could invest up to $20bn in gas development in coming years. In return for providing technical expertise in deepwater oil and gas operations, BP would benefit from Reliance's strong network of sales and marketing relationships within Indian government and private-sector circles.

Analysts are keen on the deal, calling it a "win-win" scenario for both parties. It also appears to have the blessing of India's government.

"BP coming to India is a validation of resources available in the country's oil and gas sector, particularly the east coast," S Sundareshan, the Indian oil secretary, told Dow Jones. "We have been wanting oil majors to come to India."

India is seeking to raise its domestic gas production by 21 per cent in coming years, says Mr Srivastava. BP's deep-sea drilling expertise would help advance that strategy, he indicates.

Mr Sundareshan says BP's presence in India could encourage wider participation in the country's next oil and gas bidding round. Companies have until March 18 to submit bids for the 34 blocks to be included in the nation's ninth such auction.

A third promising development last month was the completion of India's first shale well. It was a resounding success that has geologists and engineers already pegging the country's shale gas resources at between 600 trillion and 2 quadrillion cubic feet, equal to at least two centuries of gas supply at the country's current consumption rate.

New Delhi expects to launch India's first shale gas auction in August. Reliance is among the potential bidders.

The company recently acquired a stake in the huge Marcellus gas shale deposit in the north-east US and has applied itself to learning the technical side of the business.

* additional reporting by April Yee