CRISIL Reasearch: Supply Diversity & Differential Pricing to Define the Indian Gas Market

Mumbai - August 22, 2006

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In the Indian market, the deficit situation is expected to continue even in 2010-11, despite a hefty increase in domestic supply from private and JV-owned fields. According to Nagarajan, "The total deficit is expected to be around 20.3 mmscmd in 2010-11(P)."

While demand is likely to grow at the rate of 14.7 per cent per annum during 2005-06 and 2010-11(P) to 206.8 mmscmd, supply would increase from 93.7 mmscmd to 186.5 mmscmd by 2010-11(P), a growth of 14.8 per cent every year.

The power sector would continue to dominate the scene with a significant 45.7 per cent contribution to the total demand as compared to the current 35.4 per cent. However, CRISIL Research expects small industrial players and city gas distribution projects to contribute significantly to the demand growth by 2010-11(P). This segment is considered as price inelastic because the alternative to gas is usually naphtha or fuel oil, which at the present and projected prices, remain less attractive compared to gas. Hence, the small industrial players will emerge as the main consumers of LNG. The power sector, being constrained by the impact of high fuel cost on merit order of despatch, is likely to use LNG only to meet the peaking demand. However, considering the growing domestic supply of gas from the KG basin, a large chunk of domestically produced gas would find off-takers in the power sector.

Concluded.

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