Why gas is not just hot air

When forty experts with deep insights into their domains join hands to produce something, you may bet on the value of the outcome. The Next Stop: Natural Gas and India’s Journey to a Clean Energy Future , a book on natural gas in India, is one such effort.

Thirty-eight industry insiders with hands-on experience with natural gas have written 24 chapters, each of which is a book in itself. The editor, Vikram Mehta, former CEO of Shell India, has blue-penciled them all; former Petroleum Secretary Vijay Kelkar has put a crown on the heap of insights with his foreword.

Detailed as it is, there is never a dull line. The first chapters talk about the early days of natural gas, the cleanest of dirty fuels. There are some background facts, in the chapter on ‘Green fossil’, by Gurupreet Chugh, Managing Director of the consultancy, ICF India, on themes such as the advantages of natural gas, India’s acknowledged progress in raising energy access (SGD 7) and reducing by 20 per cent of GDP its carbon intensity over the last decade.

In the subsequent chapters, there is a lot of interesting historical perspectives. We learn that the first international gas contract was the one signed on June 1, 1968, when the Soviet Union and Austria signed a 60-year deal under which the former would pipe gas to the latter — the first take-or-pay contract.

The contract was recently renewed for 12 more years. There is some interesting material about how the various gas exchanges got set up — Henry Hub in the US and National Balancing Point in the UK; how the early contracts were one-on-one, which choked liquidity.

You would also get to know about the “shale revolution” in the US, engendered by two emergent technologies — hydraulic fracturing and horizontal drilling — which resulted in the US becoming a predominant player in the gas market, until the pandemic hit it, after which many gas companies ran for cover under the ‘Chapter 11 bankruptcy protection’.

Growth of LNG

Jean Baptiste Dubreuil and Akos Losz, experts at the International Energy Agency, bring in insights into how LNG has shaped the gas markets. In 2005, they say, only 13 countries had liquefaction facilities and 15 had regasification plants at the other end; these rose to 20 and 41 respectively last year, indicating the growing might of LNG.

They point to three developments that have boosted LNG in the recent times — floating liquefaction plants, increase in LNG carriers due to better propulsion systems and floating regasification plants. These have made LNG secular.

The reader also learns about the different types of contracts in LNG, reflecting the various relationships between gas producers, liquefiers, traders and energy consumers. LNG has also seen the growth of Qatar and Australia; more recently, the US has joined the race for the top slot.

Then we come to India, where the substantive part of the book really begins.

Early on, there is a chapter on production of natural gas in India by Rajeev Kumar of BP India, in which you would find an answer to an oft-asked question: how come hydrocarbons are not found in India much though they are aplenty all around? The insight one gets from Kumar is, it is not that India does not have gas (or oil); 100 trillion cubic feet, equivalent to 20 billion barrels of oil, is there to be had, reckoning at 25 per cent chance of success.

Unfortunately, most of these are trapped in geologies that are extremely difficult to reach and produce from. That makes India a medium-to-high risk country. Since much of the gas is offshore, and non-associated (not coming along with crude oil), mining the gas is expensive. The cost of supply can range from $1 MMBTU to $13 MMBTU, depending upon the location.

If that is the story with production, in the next chapters, Mohit Bhargava and Kishore Kumar Hota of NTPC and Rahul Tongia of CSEP, explain the nuances of gas demand, analysing each user segment.

For instance, take the power sector. The discoms, being in financial distress, do not want to look at gas because coal is cheaper; also, gas suppliers want take-or-pay contracts, which the discoms are ill at ease with.

Take the petrochemical sector — it needs ‘rich’ gas, with ethane and propane fractions, but typically LNG suppliers liquefy the gas only after extracting ethane and propane.

The fertiliser sector could use the gas, but it is cheaper to import fertilisers; there is no incentive to make them here, because the government’s subsidy burden increases with every tonne of fertiliser produced. City gas distribution won’t evolve until the economics improves; gas-based transportation is yet hampered by technology.

After production and demand, the book moves on to issues such as transportation, pricing and taxation and, in the end, gives a roadmap for the way forward. It deals about pipeline network and the need to unbundle public sector gas marketer GAIL’s activities of transportation and marketing.

Pricing mechanisms

The chapter on “notoriously complicated” gas pricing, by Anupama Sen of the Oxford Institute of Energy Studies, points to the evolution of various pricing mechanisms in India, starting from cost-plus, to links to various benchmarks and the current, undesirable situation where all the mechanisms of pricing exist simultaneously, so that the price of gas depends upon when it was found and not on market forces.

There is also interesting content on regulation, where the author, Sudha Mahalingam, herself a member of the Petroleum and Natural Gas Regulatory Board, says how the Board has not been able to create a competitive, efficient and fair operative environment because of its high dependence on the government for funds and manpower; she cites instances of government by-passing the Board.

In sum, the book is extremely rich in content and very insightful, obviously because the authors are industry insiders with personal knowledge on the subject.

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