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Delivering The Benefits of Natural Gas Infrastructure Challenges

Delivering The Benefits of Natural Gas Infrastructure Challenges. Content. Demand and supply of Natural Gas Existing and proposed infrastructure The Natural Gas market in South India Bulk customer to anchor load Natural Gas demand in power, fertiliser and steel sectors

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Delivering The Benefits of Natural Gas Infrastructure Challenges

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  1. Delivering The Benefits of Natural Gas Infrastructure Challenges

  2. Content • Demand and supply of Natural Gas • Existing and proposed infrastructure • The Natural Gas market in South India • Bulk customer to anchor load • Natural Gas demand in power, fertiliser and steel sectors • Distributed generation benefits • Investment levels • Direct marketing • The regulatory environment

  3. Demand 2006 • Demand 2012 Demand of Natural GasShare of segments Power and fertiliser sectors to continue to be the biggest consumers of Natural Gas Source: GAIL Infraline reference book 2006

  4. Demand of Natural GasPrimary commercial resources Share of Natural Gas as a primary commercial resource to grow from 9% in 2004 to 23% by 2032 Source: Draft Report on Integrated Energy Policy Tremendous scope for growth of Natural Gas consumption

  5. Total reserves 985 bcm Rajasthan 4.5 bcm Petronet Dahej Tripura 18 bcm Shell Hazira Gujarat 82 bcm Dabhol Bombay Offshore 380 bcm Krishna Godavri 380 bcm LNG ~90 MMSCMD Source: UBS LNG Terminal Demand and Supply of Natural GasEmerging demand and supply centres East India – 6% share by 2012 North, West India 68% share by 2012 South India – 26 % share by 2012 Source: GAIL Infraline reference book 2006 Supply will be less than demand

  6. Hyderabad Mangalore Chennai Kochi Demand and Supply of Natural GasPotential markets in South India • With availability of KG supply and consumer willingness to pay, South India is poised to become an emerging hub for Natural Gas demand • Areas for Natural Gas demand • Metro city gas distribution (CGD) • Bangalore, Chennai and Hyderabad • Non-metro CGD • Large industrial areas and special economic zones (SEZs) • Anchor loads like power, fertiliser and steel to be the bulk of market share Demand in South India to almost double by 2012 Infrastructure a critical issue in developing regional markets

  7. Infrastructure RequirementDevelopment of Natural Gas markets • Infrastructure to connect demand centers with supply sources • Infrastructure to develop regional markets • Pipelines connecting Southern states with supply sources • Pipelines connecting Eastern states with supply sources • Pipelines to connect East and West regional markets • Pipelines to connect East and North regional markets • Requires anchor loads e.g. power, fertiliser • State grids to connect major demand centres within states • National gas market expected to evolve from regional gas hubs once infrastructure is available Significant investment requirements and rapidly growing demands are challenges to infrastructure development

  8. Delhi Jagdishpur Vijaipur Existing and Proposed Infrastructure Kolkata Hazira Pune Uran Dabhol Kakinada Bangalore Chennai Mangalore Existing Existing Transmission Lines Coimbatore Kochi Planned Transmission Lines Facilitate development of Southern and Eastern regional markets

  9. Hyderabad Kakinada KG Basin Supply ANDHRA PRADESH KARNATAKA Bangalore 0 200 400 km Mangalore Chennai TAMIL NADU Kochi KERALA Infrastructure RequirementNatural Gas market in South India Thousands of kilometres of new pipelines will require multi-billion dollar investments

  10. Bulk Customers to Anchor Load • Power/fertiliser plants expected to anchor the transmission capacity • Required to optimise transmission capacity and transmission tariff • Instrumental in developing CGD network in adjoining areas • Instrumental in development of intra-state and regional markets

  11. Investment Levels • Multi-billion dollar investments necessary to build distribution network in three metros and 20 non-metros in Southern states • JV promoted by GSPC, IDFC and AP government to invest USD 1.2 billion in 1,500 km network in AP • USD 25 million needed for CGD network in Noida, Gurgaon and Faridabad • GAIL identified 22 cities for CGD with investments of USD 2.5 billion More than USD 5 billion required

  12. Natural Gas for Power, Fertiliser and Steel • Power • Environmental friendly – competitive when environmental benefits are considered • Potential to bridge the peak demand deficit • Existing Natural Gas based plants running at a low PLF due to shortage of Natural Gas • AP could emerge as biggest market for Natural Gas based power generating capacity due to proximity to KG Basin • Fertiliser • Demand of Natural Gas in fertiliser sector is expected to increase by more than 70% by 2012 • Even high priced Natural Gas attractive for consumers since prices of alternative fuels even higher • Plants operating on liquid fuel (Naphtha/FO) have potential to convert to Natural Gas • Eventually prices likely to be benchmarked against LNG

  13. Natural Gas for Power, Fertiliser and Steel • Steel • States like AP and Orissa likely to emerge as key markets for steel • Demand in steel sector expected to grow to 10 MMSCMD by 2012 • Vizag Steel’s expansion plan utilising Natural Gas which should increase Natural Gas demand by 5 MMSCMD in coming years • Rise in Natural Gas demand in steel and fertiliser sectors can be attributed to factors like • Unmet demand in existing plants • New capacities • Expansion of existing capacities • Plants witheconomic conversion potential

  14. Distributed Generation Benefits • At load centres, rather than at pithead • Synergy with the development of transmission capacity • Lower transmission and distribution losses • Distributed gas-fired generation capacity • Can provide anchor loads for development of transmission pipelines and CGD networks • New opportunity – cogeneration • At customer location driven initially by distribution inefficiencies

  15. Direct Marketing – Growth • Delhi is one of the fastest growing CGD markets • Similar potential in the Southern cities of Bangalore, Hyderabad and Chennai • Infrastructure availability and supply sources are biggest challenges

  16. Direct Marketing – BG India’s Participation • Distribution business in Mumbai (since 1995) and Gujarat (since 1997) • Combined customer base of ~570,000 (domestic, commercial, industrial & NGVs) • Pipeline network of over 3,800 kms • 2.9 MMSCMD supply of Natural Gas; 3.2 MMSCMD third party transportation • Gujarat Gas (GGCL) – Gujarat • 65% owned subsidiary of BG India • India’s largest private distribution company • Significant transmission business • Mahanagar Gas (MGL) – Mumbai • BG India (49.75%), GAIL (49.75%), Maharashtra government(0.5%) • Strong growth prospects • Leading the CNG revolution in Mumbai

  17. Regulation – Recent Developments • Petroleum and Natural Gas Regulatory Board Act enacted on April 3, 2006 • Main Provisions • Provides for regulatory board (Sec. 3) • Downstream regulator – pipelines and city and local gas distribution (Sec 11 & 12) • Registration for marketing (Sec 15) and authorisation to lay, build, operate or expand transmission/distribution (Sec 11) – however, deemed registration and authorization for entities so engaged prior to board appointment date (Sec 16) • Open access (Sec 20) • CGD exclusivity by board (Sec 20(4)) • Affiliate code of conduct (Sec 21(1)) also includes potential unbundling

  18. Regulation – Primary Policy Issues • CGD policy • Licenses should be awarded through a transparent and objective competitive bidding process • Conveyance and marketing exclusivity should be provided for • Marketing exclusivity in distribution is a world-wide best practice followed in over 40 countries allowing optimal distribution networks to be built • Pipeline policy • Pipeline capacity should be based on aggregate demand with economic expansion options to serve future capacity needs • An in-built excess capacity requirement will impose added cost to the primary loads (power and fertiliser) and could make Natural Gas an uneconomic fuel alternative in the power sector • Adoption of a policy to build to aggregate demand keeps transmission costs lower to the benefit of the end user so the nascent Natural Gas industry can develop to its optimal level

  19. Regulation – Primary Policy Issues • Transmission authorisation • Award transmission through a bidding process with objective bid evaluation criteria • Authorise pipelines following an open season procedure using the international best practice that the US Federal Energy Regulatory Commission has created • Open seasons with the regulator overseeing future expansions based on the market needs will result in an optimal transmission grid for India to the benefit of its expected economic growth • Tariff • Distance based tariffs for transmission and a revenue-based model for CGD

  20. Thank You

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