Indian Gas Scenario: Emerging Business Opportunities and Environmental Concerns

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1 22 nd World Gas Conference Tokyo 2003 KEYNOTE ADDRESS (KA I-7) Indian Gas Scenario: Emerging Business Opportunities and Environmental Concerns Mr. Proshanto Banerjee Chairman and Managing Director, Gas Authority of India India June 5, 2003

2 22 nd World Gas Conference, Tokyo 2003 Catalysing an Eco-Responsible Future Indian Gas Scenario: Emerging Business Opportunities and Environmental Concerns PROSHANTO BANERJEE Chairman and Managing Director GAIL (India) Limited CONTENTS GAIL- A Profile Global Energy scenario Indian Natural Gas Scenario Emerging Business Opportunities Towards An Eco-Responsible Future

3 INDIA S NO. 1 GAS COMPANY Gas Market Share 92 % - Market Leader Turnover US$ 2.5 Billion (FY ) 8 th among all Indian Companies* Net Profit US$ 334 Million (FY ) 6 th among all Indian companies* Market Capitalisation US$ 1.3 Billion ROIC ( ) 16.2% * As per Economic Times ET 500, May 2003 ** As Per Platt s Global Energy Business Review th among Oil & Gas companies in India* 2 nd Highest Among Global Gas Utilities** AN INTEGRATED GAS COMPANY GAS SUPPLY DOMESTIC IMPORTS TRUNK TRUNK PIPELINES PIPELINES LPG LPG && ALLIED ALLIED PROCESSING PROCESSING VALUE VALUE ADDED ADDED PRODUCTS PRODUCTS / / SERVICES SERVICES DISTRIBUTION DISTRIBUTION PIPELINES PIPELINES CUSTOMERS FERTILIZERS POWER INDUSTRIAL DOMESTIC TRANSPORT LPG LPG PIPELINES PIPELINES TELECOM TELECOM PRODUCTION PRODUCTION AND AND MARKETING MARKETING OF OF PETROCHEMICALS PETROCHEMICALS

4 Consumption in MMTOE GLOBAL ENERGY SCENARIO Total Primary Energy Natural Gas Total Primary Energy Natural Gas Avg. Annual % Change Total Primary Energy Natural Gas Total World Total World 1.9 % 2.8 % Developing Asia* Developing Asia* 3.0 % 4.5 % From Share of Natural Gas in total primary energy basket has grown from 18.9% to 23.7% * Developing Asia includes India, China, S Korea, Thailand, Malaysia, Indonesia, Taiwan and others Source: 1 BP Statistical review Of World Energy, June EIA Energy Outlook, 2003 Share of Natural Gas in total primary energy in Developing Asia has grown from 2.2% to 9.4% Going Forward Developing Asia projected to be the fastest growing energy consuming region with significant contribution of Natural Gas to drive the growth Asia share of World Energy Demand to increase GLOBAL ENERGY SCENARIO NATURAL GAS OUTLOOK Inter Regional Gas Trade Flows.(Cross Border)-IEA study 2000 : 16% of world Gas Consumption 2030 : 28% of world Gas Consumption Growing Gas Reserves Worldwide In Gas reserves exceeded Oil Reserves by 5% as per IEA study Expanding Pipeline Network and new LNG Projects will promote Regional and Global market Integration. Major Importing Countries (Europe,China,Japan,India,South Korea) Europe and Asia would emerge as major importers. Emergence of the Natural Gas Era Power Sector to drive Global Gas Consumption. Major Supplying Countries (Africa, Middle East, Former Soviet Union, Malaysia, Indonesia)

5 INDIA A FAST GROWING GAS/ ENERGY CONSUMER Gas Vs Energy Growth Source: (1) BP Global Statistical Review of World Energy, June 2002 (2) International Gas Union Statistics INDIA A FAST GROWING GAS/ ENERGY CONSUMER Gas Vs Energy Growth Challenges in Energy Sector - India Ensure supply security Source: (1) BP Global Statistical Review of World Energy, June 2002 (2) International Gas Union Statistics Enhance self sufficiency Diversify traditional energy sources Promote clean & efficient energy use for sustained growth Reform & Restructure energy market to attract Private & foreign investments Expand regional trade Align with global markets India Poised To Climb The Energy Ladder Quickly, Cleanly And Efficiently

6 (MMTOE) Oil Hydro Gas 1.1% INDIAN NATURAL GAS SCENARIO: GROWTH OVER THE YEARS Gas in Energy Basket Coal Nuclear 2.5% % % Gas as a % of total energy 7.6% Source:BP Global Statistical Review of World Energy, June 2002 Challenges in Gas Sector - India Organize competitive supply Domestic/ Cross Border Price elasticity & demand build-up Optimal infrastructure development Reforms in electricity markets Policy interventions - Planned deregulation to provide growth thrust Address environmental concerns Natural Gas Projected To Be The Fastest Growing Energy Source Improving Its Share From Current 8% To 20% By 2025* * Hydrocarbon Vision 2025 Gas Reserves ( ) Gas Production ( ) R/P Ratio* Current Demand Gas Supply Gas Imports Gas Price Major Producing Fields Key Demand Centers INDIAN NATURAL GAS SCENARIO: CURRENT STATUS Emerging Supply-Demand Centers 763 BCM 29.7 BCM 25 Yrs 120 MMSCMD 68 MMSCMD LNG Imports to commence from 2004 Administered pricing mechanism paving way for market determined pricing era Along Western Offshore Western-Northern Corridor Along HBJ** Along East Coast, Southern Regions *Prior to deep-sea finds in KG basin in 2002 ** 2800 km Hazira-Bijaipur-Jagdishpur Trunk pipeline India Emerging as a multi-source and multi-market destination

7 INDIAN NATURAL GAS SCENARIO: END USAGE TREND Nuclear 02 % Power Fertiliser Industries Retail Others 8% 2% 19% 26% 16% 5% % 34% 40% Power Hydel Naphtha Natural Gas Wind Coal/lignite Others External Ammonia Fuel Oil 23 % 02 % 07 % 01 % 64 % 02 % 10 % 09 % To go up to 15% by 2030 (IEA Study) Industries include Sponge Iron, Petrochemicals Retail include CNG, City gas, Commercial, Tea Plantation users Others include LPG shrinkage, Captive consumption Power & Fertiliser sector to be the Key anchor market with Industries as Developing market and Retail Gas (CNG/City Gas/Auto LPG) Emerging Growth market. Naphtha 30 % Natural Gas 49 % Fertiliser Source: MoPNG, Cris-Infac, GAIL INDIAN NATURAL GAS SCENARIO: MARKET POTENTIAL MMSCMD Potential Demand Scenarios HV-2025 Optimistic HV-2025 Conservative ADB Gas Master Plan India Potential Growth Hub In Natural Gas Sector In The Region

8 Domestic Gas Sourcing New Exploration Licensing Policy (NELP) I, II, III Contracts for 70 blocks signed covering a total area of 0.71 million sq. Km Estimated investment of US $ 3 Billion which will go up with more discoveries 9 discoveries within three years Initial estimates of reserves > 300 MMTOE oil & oil equivalent gas World class gas discovery in year 2002 (~7TCF) in KG basin India established commercially as the latest global destination for deep water areas NELP IV INDIAN NATURAL GAS SCENARIO: EMERGING SUPPLY SOURCES 24 exploration blocks on offer (11 onshore, 12 deep water, 1 shallow water) Upstream Reforms- Emergence of New Hydrocarbon Provinces Gas Imports INDIAN NATURAL GAS SCENARIO: EMERGING SUPPLY SOURCES LNG Terminals (Along West Coast) Petronet LNG, Dahej 5 MMTPA Shell Hazira 3.5 MMTPA Dabhol LNG 5 MMTPA Cross Border Pipeline (From East & West) Iran Myanmar Bangladesh India Strategically Located With Favorable Geographic Disposition

9 INDIAN NATURAL GAS SCENARIO: INFRASTRUCTURE CONNECTING DEMAND & SUPPLY CENTERS National Gas Grid Clean Energy Corridor INDIAN NATURAL GAS SCENARIO: KEY FACTORS Deregulation Progressive decontrol of gas prices by government Setting up of Downstream Petroleum Regulatory Board Introduction of Open Access principle Framework of Transportation Tariff determination Unbundling of Transportation and Marketing Gas Price / Transportation Tariff Gas To Gas competition: Innovative Pricing Contracts Concept of pooled pricing Multiple producer prices and multiple consumer prices for new/regional markets Postalised Vs Distance based transmission tariff Zonal pricing for high pressure grid and postalised tariff within zone Tariff methodology moving towards international practices From DCF to Cost of services methodology

10 INDIAN NATURAL GAS SCENARIO: KEY FACTORS Technology Increased monetisation of reserves due to advances in deep drilling Enhanced viability to bring gas due to advances in logistics LNG, Deep sea pipelines, CNG by ship, VOTRANS CNG, Coselle, GTL etc Development of new markets due to developments in end user side CCGT Power Generation, Distributed power, Direct gas use in home appliances, Air conditioners etc Globalisation Enhanced Foreign investment in indigenous E&P. Equity gas from foreign acreage. Integrated participation across LNG chain. Regionalisation Emergence of Pan-Asian pipeline projects reaching Indian gas market. Cross -border gas trades to drive price convergence in gas across regions. Concern For Environment Share of Gas to grow in the fuel/feedstock markets across various segments Power, Fertiliser, Industries, Transport and Homes due to sustained thrust from judiciary and policies. Emerging carbon trading to provide additional incentive for increased gas use. INDIAN NATURAL GAS SCENARIO: KEY FACTORS

11 EMERGING BUSINESS OPPORTUNITIES EMERGING BUSINESS OPPORTUNITIES Business Investments Financial Services & Contracts 1. Gas Sourcing ( Exploration & Production / LNG Supply) Strategic long term investments Alliances and Joint Ventures Surveys, Drilling, Design Engineering, Consultation, Operations & Maintenance Licensing/Technology partnerships Receiving LNG Terminal/Regasification 2. Gas supply Infrastructure National Gas Grid being planned km of pipelines linking multiple sources and multiple markets Investment : US$ 4.2 billion Pipeline supply / laying Design and Development

12 EMERGING BUSINESS OPPORTUNITIES Business Investments Financial Services & Contracts 3. End Use Sector Power generation : Capacity additions of MW/year is likely Investment opportunities in Gas-Power convergence (Generation, Transmission and Distribution) Fertiliser: Capacity expansions Other industrial users of gas 4. Gas Retailing (CNG / Auto LPG/Residential) Distribution pipelines Creation of dispensing stations CNG kit / Automobile sector investments EMERGING BUSINESS OPPORTUNITIES Business Investments Financial Services & Contracts Long term and short term funding of investments (domestic and foreign currencies) Consortium Lending and Financial Advisory services Financial Appraisal / Feasibility studies M & As Due Diligence / Valuation studies

13 EMERGING BUSINESS OPPORTUNITIES Business Investments Financial Services & Contracts Contract consultancy and negotiation Legal, Insurance, Advisory and Risk Management Services Market Studies Training Technology partnerships TOWARDS AN ECO- RESPONSIBLE FUTURE

14 1. Air Pollution is the Key threat to human health 2. Alarming increase in levels of Air Pollution primarily because of Vehicular pollution 3. Alternate Fuels for Vehicles provides a solution; But requires external push and incentives for mass implementation CONCERN FOR ENVIRONMENT Rationale Initiatives to promote Gas/alternate fuels Gas Supply to Taj Trapezium: To Mathura Refinery To Foundries in Agra To glass industries in Ferozabad CNG for Metros: Started in Mumbai (MGL) and Delhi (IGL) Bolstered by Judiciary directives (2000) to convert all public road vehicles to CNG in Delhi Models to be replicated in most major urban centers Auto LPG Motor Vehicles Act amended in 2001 to include Auto- LPG as vehicle fuel Per Capita CO 2 emission : India: 0.91 MT USA:8.88 MT Qatar: MT World Avg: 3.88 MT Environmental concern is a key driving force to promote the usage of alternate fuels for vehicles including natural gas AIR POLLUTION IN METROS IN INDIA 25% 5% 70% Transport Industries Others Source - CPCB, Delhi

15 INDIA: CNG EXPERIENCE Successful Introduction of CNG in buses and cabs in New Delhi, Mumbai City Delhi: Mumbai: Number of vehicles on CNG CNG Stations Significant reduction in air pollution in Industrial, Residential and Commercial areas - 30% to 99% reduction in Level of pollutants like So2, Nox, RSPM,SPM and CO. (Source : NEERI, Mumbai /GAIL) Number of registered vehicles in India :11.7 million (Large potential) (Buses, Taxis, Private Cars, Three Wheelers) Potential in Mumbai/ Delhi alone :1.47 million (Vehicles) Replication to other cities on the anvil India ideally placed to share experience with other countries to launch CNG initiatives ECO-RESPONSIBLE FUTURE: GAIL S ROLE Project Blue Sky CNG To The Cities Of Lucknow, Agra, Faridabad, Kanpur & Pune Project Cost Of ~ US $ 115 Million Bhagyanagar Gas Limited CNG & Auto LPG For The State Of Andhra Pradesh Gas value Chain Expand retail gas operations Commercial/Small industries, City gas in major cities across India along with CNG plans Prevention of denudation of forests by responsible use of plastics Global Plans MoU with IFCO, Iran for CNG Infrastructure Alliance with Shell for Town Gas and CNG Projects In Egypt Carried out ADB funded Feasibility Study for CNG In Bangladesh CNG in Turkey

16 CONCLUSION India is emerging as a land of enormous business opportunities in the natural gas sector. India is committed to creating an ecoresponsible future by expanding natural gas usage. Let us work together towards building an eco-responsible business THANK YOU