In the meantime, of course, there’s always the import option. And given the increasing mobility of gas internationally, geography in sourcing fuel is not likely to be an issue.

“Liquefied gas can be transported from just about anywhere to anywhere, which will make it easier for countries like ours to source gas,” explains Banmali Agrawala, chairman and managing director of Wartsila India, a Swedish gas turbine maker.

Last year India imported 5 million tonnes of LNG, mainly from Qatar under a long-term supply agreement with RasGas. Late last year and early this year, Shell Hazira imported spot cargoes of 4-5 million tonnes of LNG from Oman and Australia.

This year, Petronet LNG has also imported a spot cargo from Egypt and plans to import even more before the end of the year.

Definitions first. Natural gas is a fossil fuel occurring both by itself and along with crude oil. It is considered one of the cleanest fuels as it leaves no residue. Until the early 1980s, natural gas was burnt off when it was found along with petroleum (the flares that characterise oil rigs and installations).

But rapidly depleting oil reserves and continuously increasing demand for fossil fuels meant that natural gas began to be seen as a fuel in its own right. While compressed natural gas (CNG) is, as the name suggests, a compressed form of the gas, liquefied natural gas (LNG) is natural gas liquefied under pressure for easy transport.

Demand for natural gas in India is expected to grow three-fold over the next few years. By 2012, the demand for gas is expected to grow from the current 120 million standard cubic metre per day (mmscmd) to 400 mmscmd. This includes both CNG and LNG. Currently, gas constitutes only 9 per cent of the Indian energy basket but is expected to increase to 20 per cent by 2025.

One of the reasons for this growth is the growing number of gas-based power generation projects as well as the shift from diesel to CNG as fuel for commercial vehicles. The shift to CNG and LNG is a global phenomenon: in Europe, for instance, natural gas is used for heating buildings as well. Despite the robust demand, however, supply has always been a constraint in the gas market.

Currently, the power and fertiliser sectors consume around 75 per cent of the gas available in India, although demand from these sectors still remains unmet. Nearly 7,000 MW of power generation capacity in India is lying idle or underutilised for want of gas.

Some of this could change starting 2009-10, when the supply of gas is expected to increase as the Krishna-Godavari basin gas fields discovered by Reliance Industries and Gujarat State Petroleum Corporation (GSPC) will start production.

ONGC, along with its joint venture partners, is also stepping up efforts to increase production. The ministry of petroleum and natural gas is already negotiating with the governments of Pakistan and Iran to access the central Asian gas fields.

A feasibility study on the pipeline is underway at present. Within the country, too, the network of pipelines being put up by GAIL, Reliance Industries and GSPC is expected to be in place by 2009-10.

Of course, price remains a critical issue in LNG supply and demand. The section above explained why demand for LNG isn’t likely to come down anytime soon.

But it’s also important to remember that Indian buyers have accepted the high-price regime in LNG mainly because it replaces naphtha, which is almost 60-70 per cent more expensive than even the spot LNG price.

“As long as this difference continues, LNG will remain the preferred fuel,” says Shukla. Which is why companies that haven’t tied up long-term supply deals (which would offer some measure of price stability) are still buying LNG in the spot market.

Since demand will remain high, it follows that LNG prices, too, aren’t likely to fall. Analysts point out that crude prices are an integral part of the LNG price mechanism, so gas prices may continue fluctuating in the higher ranges along with crude oil prices.

Prosad Dasgupta, CMD, Petronet LNG, has a firmer prediction. “The Henry Hub price [the daily spot price at Henry Hub in the US] may be $4-5 per mmbtu by 2010,” he says. (Present rates are $4-6, but were higher recently.)

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