The Hindu Business Line : Expand transmission system to create gas grid: Energy Agency

"This shift in customer attitude and the strong economic growth over the last years has resulted in a more positive assessment of the future of LNG in India."

New Delhi June 3 The International Energy Agency (IEA) has said that India's transmission system would need to be substantially expanded to create an Indian gas grid.

In its latest flagship report on natural gas market review, the Paris-based agency functioning as a coordinator for energy cooperation among the Organisation for Economic Cooperation and Development (OECD), said that India's monopoly pipeline operator, GAIL operates about 5,600 km of pipelines with a capacity of around 130 million cubic metres (mcm) per day. Of this only around 64 per cent is currently used.

It said private investment in transmission infrastructure has so far not been permitted. But as part of the new regulatory framework, transmission now falls under the regulatory authority.

Promoting competition

India's "Policy for Development of Natural Gas Distribution Networks" was codified in December 2006, it said, adding that the policy seeks to promote competition and transparency in the transmission sector, and is also charged with vertically unbundling interests in upstream and downstream sectors, where for instance, companies such as GAIL are present.

The IEA cautioned that the policy stipulation requiring mandatory excess capacity of 33 per cent for all pipelines is likely to adversely affect the rate of investment in such pipelines.

On pipeline imports, the report said, India's plans to import gas via pipeline from its neighbouring countries have not progressed physically during the last year. However, contractual progress came in the form of an agreement reached between India, Pakistan and Iran on the pricing formula for gas through Iran-Pakistan-India (IPI) pipeline.

Iran offered to sell gas at a price based on 6.3 per cent of the Japanese crude cocktail (JCC, an average of Japanese crude import prices) in US dollars per barrel plus $1.15/Mbtu (million British thermal units) with a ceiling of $70 barrel and a floor price of $30 per barrel. Both India and Pakistan seem to have accepted this new pricing proposal, it said.

IPI pipeline

Under this plan, India would receive a maximum of 90 mcm per day through. India's import prices at the Pakistan border would be about $5/Mbtu (at $60 per barrel JCC) without transit and transport charges. The IEA report said the higher prices being paid for LNG imports and the potential pipeline imports would result in private domestic producers pleading higher gas sales prices within the country.

On LNG, it said India's import capacity currently stands at 12 bcm (billion cubic metres) per year (9 mtpa) through two terminals located on the Western coast. Petronet LNG's Dahej terminal is capable of handling 8.8 bcm per year (6.5 mtpa), supplemented by spot cargoes from other sources. The Shell-Total promoted Hazira terminal imported only 0.24 bcm (1,75,000 tonnes) through its 3.4 bcm per year (2.5 mtpa) facility during fiscal year 2005-06, the first year of operation. For the year ending in March 2007, the Hazira terminal operators expect a capacity utilisation of around 30 per cent.

The increase in utilisation of extant infrastructure is primarily due to Indian customers adjusting to paying global spot prices for gas with fertiliser, power and petrochemical plants switching away from naphtha to gas, the report said. After resisting for a long while, public power sector producer, NPTC had to resort to buying spot LNG in 2006 for up to $12 Mbtu to overcome supply constraints to its plants. "This shift in customer attitude and the strong economic growth over the last years has resulted in a more positive assessment of the future of LNG in India," the report said.

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