India’s natural gas production to rise 41% to 130 mmscmd over five years, says ICRA

India’s natural gas production to rise 41% to 130 mmscmd over five years, says ICRA

India’s domestic natural gas production is set to rise by 41 per cent to 130 million standard cubic meters per day (mmscmd) over the next five years through 2021 as compared to 92 mmscmd last financial year, research and ratings agency ICRA has said in its latest report on gas utilities.

This would be achieved on the back of likely commencement of GSPC’s Deen Dayal block and ONGC’s KG basin blocks along with marginal increase in RIL’s KG production. The agency also said the gas demand will rise to 275 mmscmd by 2020 from the current demand potential of more than 225 mmscmd.

“While the demand potential for natural gas is high, the actual offtake could critically depend upon the price competitiveness of gas or Regasified-Liquefied Natural Gas (R-LNG) against alternative fuels (especially in current low crude oil price scenario),” ICRA said. With the improvement in supply and the significant addition in the regasification capacities planned in the next 3-4 years, the capacity utilisation of pipeline network will improve in the long-term, it said.

“Despite the ambitious plan of the government to double the pipeline capacity, the constrained gas availability may be a key hurdle for the viability of new pipeline projects which require large investments. Though the government is willing to provide Viability Gas Funding (VGF) for new projects, the interest of private players may be limited in absence of much clarity on the availability of gas supplies and anchor customers who can consume high-price RLNG,” the report said.

With production from the KG-D6 block coming on-stream in 2009-10, various firms had announced projects to connect some of the high-demand areas in south, east and central India. The government had last year set an ambitious target of doubling the gas pipeline capacity to 30,000 kilometre under the National Gas Grid Mission. The options being discussed include a partnership between GAIL (India) and Gujarat-based GSPC, taking up certain strategic pipeline projects based on budgetary support, public-private partnership (PPP) and bidding on viability gap funding (VGF).

But land acquisition poses a significant challenge for new pipeline projects, ICRA said. Also, the already awarded contracts may have cost overruns due to the multi-fold increase in cost of land from the time when the projects were awarded. Moreover, the increasing cost of construction and contractors’ charges in line with inflation would increase capital expenditure for the projects, which have faced time overruns.

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