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India Natural Gas
Gas prices could levitate to USD7-10/mmbtu range
Media reports USD10/mmbtu delivered price for gas from
Turkmenistan into India
With domestic gas producers vying for higher gas price, the
Turkmenistan gas price could provide a benchmark
Domestic gas fields are viable at USD7/mmbtu and is an
acceptable price for all consumers classes
Turkmenistan gas price could provide a viable benchmark. The supply from Turkmenistan
is slated to commence in 2016-17 through a pipeline running via Afghanistan and Pakistan to
India (TAPI pipeline). The supply chain looks very similar to a conventional E&P
development except for potential transit fee to be paid to intermediate countries. Therefore, the
gas price offered by the TAPI project has all the elements of an acceptable benchmark as long
as the gas price is viable for major consumer categories like fertilizer and power producers. As
per Economic Times, India is likely to purchase gas at USD7/mmbtu resulting in a delivered
price of cUSD10/mmbtu post transit charges.
Allocation policy limits the scope for domestic gas price discovery. Gas allocation policy
mandates the supply of domestic natural gas in order of priority, first to fertilizer sectors,
followed by LPG extractor, existing power producers, and city distribution (CGD) in that
order. Industrial consumers have the lowest priority. As a result, the price discovery has
limitations as producers are unable to sell full quantity to the highest bidder if the bidder is
not from the priority sector. Therefore, the benchmark price needs to be affordable to the
priority sector consumers. See charts 1-4 for detailed gas demand-supply estimates.
The consuming industry does not view LNG as a fair benchmark for domestic gas. Due
to significant additional capital cost required in both liquefaction and regasification terminals,
LNG is not perceived as a right benchmark for domestic gas. However, in the absence of any
other benchmark, a government appointed committee headed by Mr. Saumitra Chaudhuri has
proposed the domestic price as an average of gas price in the US and Asian LNG prices
which would tantamount to cUSD8-9/mmbtu given the current price levels.
USD7-8/mmbtu is acceptable to all consuming classes. Our estimates indicate that the
power and fertilizer sectors form the class of consumer that will pay the least for natural gas
(Table 3). Other consumer categories are largely liquid fuel substitutor and hence can afford
higher gas price. We believe both urea and power producers can pay cUSD7/mmbtu based on
HSBC long-term urea price and merchant power price in India, respectively.
Recent developments and other natural gas-related data
CBM price discovery facing regulatory uncertainty
Reliance Industries (RIL) recently sought bids for off-take from their coal-bed-methane (CBM) blocks
located in the central part of India. As per our estimates, the peak production is likely to be around 3-4
mmscmd while the initial production could be below 0.5 mmscmd. RIL is also among bidders and has
offered to purchase full quantity at USD12.31/mmbtu. As per press reports (Economic Times, 7 March
2012), consumers have offered up to USD13/mmbtu for the gas from the field. While there is not a firm
allocation mechanism yet available for CBM blocks, we believe allocation policy valid for conventional
fields is likely to be made applicable for CBM fields as well.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Natural Gas
Gas prices could levitate to USD7-10/mmbtu range
Media reports USD10/mmbtu delivered price for gas from
Turkmenistan into India
With domestic gas producers vying for higher gas price, the
Turkmenistan gas price could provide a benchmark
Domestic gas fields are viable at USD7/mmbtu and is an
acceptable price for all consumers classes
Turkmenistan gas price could provide a viable benchmark. The supply from Turkmenistan
is slated to commence in 2016-17 through a pipeline running via Afghanistan and Pakistan to
India (TAPI pipeline). The supply chain looks very similar to a conventional E&P
development except for potential transit fee to be paid to intermediate countries. Therefore, the
gas price offered by the TAPI project has all the elements of an acceptable benchmark as long
as the gas price is viable for major consumer categories like fertilizer and power producers. As
per Economic Times, India is likely to purchase gas at USD7/mmbtu resulting in a delivered
price of cUSD10/mmbtu post transit charges.
Allocation policy limits the scope for domestic gas price discovery. Gas allocation policy
mandates the supply of domestic natural gas in order of priority, first to fertilizer sectors,
followed by LPG extractor, existing power producers, and city distribution (CGD) in that
order. Industrial consumers have the lowest priority. As a result, the price discovery has
limitations as producers are unable to sell full quantity to the highest bidder if the bidder is
not from the priority sector. Therefore, the benchmark price needs to be affordable to the
priority sector consumers. See charts 1-4 for detailed gas demand-supply estimates.
The consuming industry does not view LNG as a fair benchmark for domestic gas. Due
to significant additional capital cost required in both liquefaction and regasification terminals,
LNG is not perceived as a right benchmark for domestic gas. However, in the absence of any
other benchmark, a government appointed committee headed by Mr. Saumitra Chaudhuri has
proposed the domestic price as an average of gas price in the US and Asian LNG prices
which would tantamount to cUSD8-9/mmbtu given the current price levels.
USD7-8/mmbtu is acceptable to all consuming classes. Our estimates indicate that the
power and fertilizer sectors form the class of consumer that will pay the least for natural gas
(Table 3). Other consumer categories are largely liquid fuel substitutor and hence can afford
higher gas price. We believe both urea and power producers can pay cUSD7/mmbtu based on
HSBC long-term urea price and merchant power price in India, respectively.
Recent developments and other natural gas-related data
CBM price discovery facing regulatory uncertainty
Reliance Industries (RIL) recently sought bids for off-take from their coal-bed-methane (CBM) blocks
located in the central part of India. As per our estimates, the peak production is likely to be around 3-4
mmscmd while the initial production could be below 0.5 mmscmd. RIL is also among bidders and has
offered to purchase full quantity at USD12.31/mmbtu. As per press reports (Economic Times, 7 March
2012), consumers have offered up to USD13/mmbtu for the gas from the field. While there is not a firm
allocation mechanism yet available for CBM blocks, we believe allocation policy valid for conventional
fields is likely to be made applicable for CBM fields as well.
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