Natural Gas Supplies Up in India for 2008

MUMBAI: Major developments in the Indian oil and gas business during 2008 could define it as a turning point. The events have global ramifications and are expected to impact the supply-demand dynamics of petro-product trading in the international oil markets. The most significant of these is the large addition of fresh refining capacity in India, an event that will pump out high-quality petroleum products into the markets. By the year-end, refining capacity is expected to grow by close to 47 million tonnes, almost a third of the total capacity now.

The other big change will be the beginning of natural gas supplies from the Krishna-Godavari basin by the middle of the year, an event that is finally expected to end the perennial gas shortage in the country. Gas will displace a lot of traditional liquid fuels like naphtha and LSHS that are currently being used by power, petrochemicals and fertiliser companies. The third big change involves the gradual spread of pipeline infrastructure. A cross-country gas pipeline grid is emerging, that has already seen two former adversaries, Gail and RIL, collaborate to connect various consumption centres.

This will eventually provide an avenue for gas produced by others, like ONGC and GSPC. But the biggest benefit, expected to touch millions of consumers, is the availability of gas for retail. Natural gas, piped alongside trunk lines, will be available to dozens of cities for use as an auto fuel and domestic fuel. Close to 20 city-specific gas companies have already been set up by oil companies, in anticipation of the gas.

Pointing out changes on the oil infrastructure front in 2008, oil industry insiders say that two large single buoy mooring (SBM) systems, one at Paradip on the east coast being set up by Indian Oil and the other at Jamnagar (RIL) on the west coast, will change the economies of scale for the two firms.

IOC will be able to bring in crude oil in VLCC’s for the first time on the east coast, improving its refining margins. The economies of scale have been used very effectively by RIL for its Jamnagar refinery since its inception. For Reliance, the new SBM, will allow exports of large parcels of high-quality fuel from the new refinery to markets like the US.

“On a global scale, the Indian petroleum products coming out of the two Reliance refineries and the Essar Oil project will rapidly displace products currently being supplied by the Korean oil giants,” oil trading sources said. Since the products like cleaner diesel and petrol, are moving to the US, there is expected to be a surplus of local production from existing suppliers, they said. RPL’s new refinery has the capability to produce Euro 5 standard petro-products, which can be sold for good margins in the environmentally-conscious US.

Though not as environmentally stringent, Indian power producers, too, are expected to start importing low sulphur furnace oil and LSHS for use in their refineries particularly in the metros. On the financial front, the year is expected to see money being raised for BPCL’s 9 MT Bina refinery, as well as the financial closure for Nagarjuna Oil’s Cuddalore refinery. So, construction will be in full swing at the three new refinery projects at Bina, Cuddalore and Paradip in Orissa, setting the pace for India’s emerging position as an Asian refining hub.