Friday, February 26, 2010

India's Gas Highway - Tanmay G Purohit
The government is planning to boost use of clean fuel by reaching out to unserviced areas through a national gas highway. India's gas production has been ramped up after the D6 Block of Reliance Industries in the Krishna-Godavari Basin started to pump it out. The market of natural gas has so far been restricted only to a few metros and key towns. The government plans to build 500-600 km gas pipelines every year under the proposed national gas grid. The government is also proposing to set up an apex planning body and regulator, the National Gas Highway Authority, on the lines of National Highways Authority of India, which will oversee laying of major gas pipeline projects.
"It is envisaged that the National Gas Highway Authority would plan, develop, manage and regulate the gas highways and concentrate on planning the development of gas pipeline infrastructure, especially in remote and under-developed regions, leading to a national gas grid," Deora said in a written reply to a query. The government is planning to start gas supplies for transportation and cooking in 201 new towns by 2015.
Need for a Gas Pipeline Highway:-
  • The gas availability will ensure rapid industrialisation and help the growth of small and large units, apart from connecting households to piped gas supply.
  • With the recent find of natural gas in the Krishna-Godavari basin in the eastern offshore of the country, indigenous production is set to double, with natural gas emerging as an important source of energy. LNG infrastructure in the country is also being expanded. Current domestic gas production is estimated at 141.5 million standard cubic metres a day (mscmd).
  • At present, the bulk of gas consumption is accounted for by the western and northern states, while the eastern and southern states were lagging due to low gas pipeline density. The purpose behind expanding the existing pipeline network is to bring down the considerable inter-state disparity in gas consumption. Unviable routes where the private sector might not be interested in laying pipeline would be taken up under the gas highway plan.

Why only Pipelines?
  • Pipe transportation is an economical mode of transport compared to traditional modes of rail, road and sea transport.
  • This mode of transportation also helps in saving scarce natural energy resources and time taken for transportation. However, pipe networks need to be guarded from any kind of damage.
  • Despite the above advantages, India with its large geographical area has very low pipe penetration levels at 32% compared to global average of 79% in oil and gas transport. The pipeline network of India for oil and gas transport stood at 13,517 kms as at April 06. Sanitation levels are also lower at 33% compared to 91% in Srilanka and 100% in France. Of 140 mn hectares of cultivable land, only 40% land is irrigated.

Current Scenario:-
India has an existing gas pipeline network spanning 10,000 kilometers of which Gas Authority of India Limited (GAIL), India's largest gas-transmission and marketing company, owns 55%. The remaining 45% is held in partnership with the private sector. The private players are active primarily in the downstream sector.
Following is a summary of comparison between Pakistan and India, comparison done by ASSOCHAM (all 2007 data)-
  • Pakistan's gas pipeline infrastructure is six times stronger than that of India. Its infrastructure has a network of 10,500 km as compared to 56,400 km in India.
  • The current pipeline density of India stands at 116 million metric standard cubic meter per day (km/mmscmd) compared to 1,044 km/mmscmd in Pakistan.
  • As a result of intensive pipeline network Pakistan has connected its 1,050 towns and villages. However, India's connectivity is restricted to 20 cities.
  • Pakistan possesses nearly 1,600 CNG stations against 380 in India.
  • In the study, the chamber estimated that there are 19 lakh gas customers in Pakistan against 5.50 lakh in India.
  • Also, Pakistan runs 15.60 lakh vehicles on CNG, while India runs only 4.60 lakh vehicles.

ASSOCHAM, The Associated Chambers of Commerce and Industry of India, the apex industrial body in India, said that since the pipeline network in the country does not reach out to potential demand centres, a number of industrial projects have to depend on much more costlier and more polluting alternative fuels.
ASSOCHAM and Ernst & Young Global Limited (London), a leading global professional services organization, have estimated a total investment of $9.2 billion over the next five years for laying the gas pipeline network in India, according to Industrial Info Resources (Sugar Land, TX). The study is part of a paper titled "Indian Oil & Gas Sector: Rising Business Opportunities" jointly published by both organizations. The rapid growth in the Indian petroleum sector calls for a robust country-wide pipeline infrastructure. States that have existing regional pipeline networks include Gujarat, Andhra Pradesh, Assam and Tripura. Gujarat is laying a 1,200-kilometer Gujarat gas grid while Andhra Pradesh has further invested in augmenting the present gas distribution network.
The study estimates that an additional $16 billion will be required by 2015 to enhance the pipeline infrastructure. This will primarily be used for gas transportation to consumers and will be developed jointly with the private sector.

Oil and Gas as a pivotal source of Energy:-
Oil and gas contributes to 36% of the total energy generated in India today. Its share in the energy mix is expected to go up to 41% within a decade, while coal remains the primary source of energy in India. While recent initiatives by the Indian government to promote the oil and gas sector such as the New Exploration Licensing Policy (NELP) and tax holidays under certain conditions for exploration projects have been applauded, the ASSOCHAM study also recommends changes to NELP to attract more investors for domestic exploration projects. Investments are important to fund exploration amidst the ongoing global liquidity crunch.
The study highlights the limited availability of oil and gas resources and recommends government regulations to ensure gas is used only in cooking, automobiles and as an input for fertilizers.
GAIL and Reliance are playing a major role in setting up network of pipelines. When the gas grid gets completed, the natural gas business is expected to potentially get bigger than the country's telecom market also.
Need for Security:-
Gas Pipelines, being major medium for transporting important fuel like Gas are like veins in human body. There is a security threat given current state of terrorism in the world and the piplelines must be protected from such risks. Referring to security threat on the gas pipelines, L Mansingh of PNGRB said electronic surveillance technologies like SCADA system will be incorporated across the gas networks to enable precision detection of pilferage or sabotage among the nation-wide pipelines.

Companies that will benefit by the Gas Highway:-
GAIL has a vision of creating a National Gas Grid in India to connect gas sources with consumption centers. The gas grid is conceptually similar to India's PowerGrid and will ensure a common distribution and transmission network throughout India. In order to implement the grid, a few pipeline projects have been initiated that include the Dahej-Uran pipeline project, the Dabhol-Panvel pipeline project and the Jagoti-Pithampur pipeline project. This cross-country integrated project will run across 15 states through a high-pressure interstate gas-pipeline network stretching over 8,000 kilometers. GAIL's gas supply (upstream) comes from indigenous gas fields and imports. Gas from future transnational gas pipelines from Myanmar and Iran could be transported to different consumption centers (downstream) in the country.
Currently GAIL business portfolio includes:-
  •  6,700 km of Natural Gas high pressure trunk pipeline with a capacity to carry 148 MMSCMD of natural gas across the country
  •  7 LPG Gas Processing Units to produce 1.2 MMTPA of LPG and other liquid hydrocarbons
  •  North India's only gas based integrated Petrochemical complex at Pata with a capacity of producing 4,10,000 TPA of Ploymers
  • 1,922 km of LPG Transmission pipeline network with a capacity to transport 3.8 MMTPA of LPG
  • 27 oil and gas Exploration blocks and 3 Coal Bed Methane Blocks
  • 13,000 km of OFC network offering highly dependable bandwith for telecom service providers
  • Joint venture companies in Delhi, Mumbai, Hyderabad, Kanpur, Agra, Lucknow, Bhopal, Agartala and Pune, for supplying Piped Natural Gas (PNG) to households and commercial users, and Compressed Natural Gas (CNG) to the transport sector
  • Participating stake in the Dahej LNG Terminal and the upcoming Kochi LNG Terminal in Kerala
  • GAIL has been entrusted with the responsibility of reviving the LNG terminal at Dabhol as well as sourcing LNG
  • Established presence in the CNG and City Gas sectors in Egypt through equity participation in three Egyptian companies: Fayum Gas Company SAE, Shell CNG SAE and National Gas Company SAE.
  • Stake in China Gas Holding to explore opportunities in the CNG sector in mainland China
  • A wholly-owned subsidiary company GAIL Global (Singapore) Pte Ltd in Singapore 

GAIL had 78% market share in 2008-09 in Natural Gas Transmission and 70% market share in Natural Gas marketing.
Strong Q3FY10 for GAIL: - Gail’s net profit for the quarter ended December 31, 2009, zoomed 240% to Rs 860 crore as against Rs 253 crore in the corresponding period last year. During the quarter, the company’s turnover also rose 6% to Rs 6,187 crore, as against Rs 5,812 crore in the same period last year.
Gail would make a capex of Rs 5,500 crore in 2010-11. About Rs 4,000 crore of this expenditure will be made on expanding gas transmission network. Mr Tripathi said that it was looking at expanding gas distribution network with Egas in Egypt.
GAIL benefits by Parikh Committee recommendations - GAIL, in particular, may benefit significantly from the proposals, which exempt it from under-recovery sharing even on cooking fuels in an increasing price scenario.
GAIL - CMP Rs 405
Target Rs 530 Time frame (12-15 months)

Reliance Industries Limited
India's largest private-sector enterprise, is also involved in small pipeline projects that include the 1,400-kilometer Kakinada-Hyderabad-Uran-Ahmedabad pipeline and the Kakinada-Vajaywada-Nellore-Chennai pipeline. The Kakinada-Chennai pipeline with a scope for extension to Tuticorin and Bangalore covers the southern region. The petroleum majors are also eyeing the possibility of developing a network along the 1,100-kilometer Kakinada-Howrah route. Pipelines emanating from Kakinada are of strategic importance to the company as it owns and has recently started production in the Krishna-Godavari basin and now ramping up the production also.
The proposed acquisition of LyondellBasell by Reliance, if it goes through, will be a winning bet for RIL as the company has enough cash reserves to fund the deal, which in turn will further boost its core businesses.
RELIANCE has submitted bid to acquire Canada-based Value Creation Inc which is a player in Oil Sands development. Canadian companies have expertise in creating Oil from Sands and when regular Crude Oil rates shoot ahead this business would be a major beneficiary, RIL must be expecting firm crude prices in the future and so the bid made in my view.
RIL Q3 results were above expectations as the company showed profit growth first time in last 5 quarters. Net Profits grew 16% to Rs 4008Cr and Sales Revenue rose 92% to Rs 56856Cr. RIL is benefitting immensely after KG-D6 gas ramp-up and this company is a must buy for any investor.
Target Rs 2000 Time frame (15-18 months)

GSPL (Guj State Petronet Limited)
The Gujarat government, through GSPC and other state-owned companies, holds 49.2% stake in GSPL. Established to set up a natural gas transmission network in the state of Gujarat, GSPL has till date commissioned a pipeline network of 1420 kilometers (kms) and intends to expand its grid to 2200Kms reaching all 25 districts of Gujarat. GSPL provides its gas transmission infrastructure on an ‘open access’ basis, which means the transmission capacity is available to any player on a non-discriminatory basis for a fee. For long-term transmission agreements, the contract period typically varies between 5-25 years, while a small chunk of the company’s revenues also flows from short-term contracts. Thus, the company generates a steady income from its business, barring situations where gas transmission volumes fall.
With the experience it possesses and to expand outside Gujarat, GSPL has submitted EoI (Expressions of Interest) for 4 pipelines. There will be more revenue visibility as well as security if some of these tenders are allotted to GSPL.
GSPL Q3 results were amazing – The Company posted Net Profit of Rs 115Cr, a whopping growth of 317% and Income rose 120% to Rs 271Cr.

GSPL – CMP Rs 84
Target Rs 130 (18-24 months)

India with just around 10500km of Gas pipeline needs to improve on this count to make Gas reach even the smallest of the households and it should be at low cost; pipeline transport cost is 1/6th of road and even Pakistan boasts of 56400km of Gas pipeline while China is building a gas pipeline from Bangladesh across India; India has so far missed out on huge infrastructure opportunity of Gas pipelines. Recent Government statement says Reliance Gas has improved Power availability and many NELP scheme would make India a Gas surplus state in years to come, we have to reduce dependability on coal which is becoming expensive and it is a more pollutant fuel than Gas also.

(Data Source: Various News Websites and Company Websites)

1 comment:

harish said...

Awesome write up Tanmay Sir...Really displays the efforts you have put into this..But really Natural Gas is going to be next big thing..including your recommended stocks, i would really like to know your opinion on PSL (Pipeline supplying company), i'm really convinced by this company..Can you give a technical view on this compnay.. Thanks..