Content. PwC. PwC. Impact of Natural Gas on Liquid Fuel Consumption and downstream Petroleum Sector. September 1, 2010

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1 Impact of Natural Gas on Liquid Fuel Consumption and downstream Petroleum Sector September 1, 2010 PwC Content 1. Background 2. Liquid Fuels displacement by gas 3. Region wise displacement 4. Domestic gas production in India 5. LNG imports in India 6. Displacement under supply constrained scenario PwC

2 Background Increase in gas supplies due to production from KG D6 and other discoveries of ONGC, GSPC, etc. as well as LNG imports would not only meet the existing demand and promote setting up of brown field and green field gas fuelled projects but displace the liquid fuel consumption either partly or wholly Natural gas Production is expected to grow from 76 MMSCMD to Approx 252 MMSCMD 11-12* Growth in the XI Plan Period is 230% Demand growth of oil and gas MTOE in to 234 MTOE in 11-12** Growth in the XI Plan Period is 40% Consumption growth of other energy sources like coal, lignite and hydro power MTOE to 546 MTOE in 11-12** Growth in the XI Plan Period is 35% * Source: DGH, PwC Analysis, **Source: Eleventh Five Year Plan, Planning Commission Slide 3 Additional Gas Application Areas Where will the additional gas in India possibly go? New application areas? New establishments of old application areas? Displacement of other existing fuels? 1.New gas based products etc. 1. New Gas based power plants; 2. New gas based fertilizer units 3. Transport sector 1. Liquid petroleum Fuels used for domestic (LPG, SKO), industrial (FO, LDO, LSHS, Naphtha, HSD), commercial (HSD, LPG), Transportation (MS, HSD,) Slide 4

3 Displacement Analysis Drivers & Constraints of Displacement Each end-user segment has set of different decision variables to evaluate switchover to natural gas. Economics of Switchover Feasibility Supply constraint Availability of Infrastructure Availability of natural gas Price of NG vis-a -vis other liquid fuels Sustainability contract Long term gas Drivers and Constrains of displacement Consumer mindset to change to NG Environmental regulations Regulatory Compliance Technology to support switchover Take or pay or other types of contracts Technical feasibility Convenience Consumer Psychology Slide 5 Displacement Analysis Overall Approach & Methodology The study accorded sensitivity to sectors, fuels and the constraints which come in the way for gas penetration. Step 4 Step 1 Identified Step 2 Fuels identified in Step 3 Sectors sectors Select Sector s Fertiliser Power CGD Refinery Steel Petroch emical Identify Fuel mix and Estimate consumption Naphtha, FO/LSHS HSD, Naphtha, FO/ LSHS MS, HSD, LPG, SKO Naphtha, FO/LSHS Naphtha, LPG Naphtha, LPG Estimate year-wise and regionwise displaceable volumes Estimate Displaceable Volumes 1.Apply infrastructure constraint 2.Apply assumptions and estimate the realistic volume of year on year displacement Slide 6

4 Assumptions 1. Natural gas is price competitive to liquids 2. Proposed pipelines will commission in Power 60% PLF 4. Realizable demand over 7 years Domestic 5% to 35% Transport 15% to 30% Industrial 40% to 70% 5. Sectoral consumption share of states is same as the national one 6. Demand of liquid fuels will continue to grow; net effect will depend on ability of gas to displace. PwC Findings/Conclusions of Study Gas sector is passing through challenges. In Business As Usual, gas has potential to displace 43.6 MMT by Assumptions CGD licensing in , the proposed pipelines complete by , all cities on pipeline routes (existing & proposed) are licensed out and gas is available unconstrained. Slide 8

5 Findings/Conclusions of Study Impact on diesel and heating oils is expected to be highest. Assumptions CGD licensing in , the proposed pipelines complete by , all cities on pipeline routes (existing & proposed) are licensed out and gas is available unconstrained. Slide 9 Displacement Analysis Region wise Volume of Liquid Fuels Projected to be Displaced by Gas by The projected displacement of LPG and petrol is maximum in the domestic and transport sectors of cities in the Northern Region, connected/proposed to be covered by CGD network. The projected displacement of diesel is maximum in the Western Region, connected/proposed to be covered by CGD network All figures are in MMT, Slide 10

6 Gas Supply Scenario Domestic Gas Production SI APM Gas (ONGC, OIL) Pre-NELP NELP CBM Estimated Addition Domestic Production (1-5) Source: DGH Note: Estimated addition includes an estimate of production from fields/blocks for which FDPs are under approval or are under preparation (KG-OSN-2001/3 block of GSPC, NEC-25 of RIL, RJ-ON-90/6 of Focus Energy, Cauvery Bain Landfall and Cairn s block in Rajasthan).This estimate is as indicated in industry reports and may not necessarily be indicative of actual production potential, which will meet Government approval. Slide 11 Gas Supply Scenario LNG Imports Data SI. LNG Terminal Company Name Name Year-on-Year LNG Regasification Capacity (MMTPA) and R-LNG Supply (MMSCMD) (Actual) Petronet 1 Dahej Terminal LNG Limited Hazira Terminal Shell Ratnagiri RGPPL Gas and Power 3 Terminal Private Limited Kochi Terminal BPCL Mundra 5 Terminal Adani Mangalore 6 Terminal MRPL Ennore 7 Terminal IndianOil Total LNG Regasification Capacity (MMTPA) Total R-LNG Supply* (MMSCMD) Source: Company Presentations; Annual Reports of Companies; Interaction s with IndianOil and RGPPL; No information in Public Domain for Adani s Mundra Terminal and MRPL s Mangalore Terminal Slide 12

7 Findings/Conclusions of Study Displacement Analysis- Supply Side Constraints Approximately MMSCMD of gas will be required to displace 43.6 MMT of liquid fuels by the year Gas consumed by the existing units in the current year is 141 MMSCMD. After backing out 141 MMSCMD out of the total projected gas supply volume of 252 MMSCMD in the year , 111 MMSCMD of gas is estimated to be available (Additional Gas) to support the displacement of liquid fuels by the year Therefore, there exists a supply shortfall of 32 MMSCMD posing a supply side constraint to compliment displacement of 43.6 MMT of liquid fuels in select sectors by the year Year Quantity of Natural Gas equivalent of volume of liquid fuels displaceable by gas (Figures in MMSCMD) Total Supply of Gas ( ) Domestic production LNG Supply Gas Supply to existing units Actual volume available for displacement (2-3) Supply side constraints to compliment displacement (1-4) Slide 13 Findings/Conclusions of Study Displacement Analysis- Supply Side Constraints Most important consideration to analyse this further is that substantial gas out of the 111 MMSCMD is expected to be LNG sourced from PLL, Hazira and other terminals. The gas from LNG long term sources is not expected to be price competitive. Hence, the sectoral allocation assumed is also influenced by the affordability aspect. SI Priority Sectors Identified Figures 1. Fertiliser Sector (expansion of existing units and revival of closed urea units) Power Sector ( ) Under construction gas based power projects LNG based Independent based power projects 5 3. Total Gas requirements (1+2) 40.5 Out of 111 MMSCMD of gas estimated to be available for displacement of liquid fuels during the period of study, after accounting for 40.5 MMSCMD of gas deployment, the net quantity available for displacement of liquid fuels shall be 70.5 MMSCMD by the year Slide 14

8 Findings/Conclusions of Study Displacement Analysis- Supply Side Constraints Fertilizer sector, being the priority of the government, has been assumed to get the gas as much as it needs. However, it is subject to availability of infrastructure. Sector (MMSCMD) Fertiliser Power sector, has been accorded the priority second to fertiliser. Therefore, it has been assumed that power sector will also get the required volume of gas to support the displacement. Sector (MMSCMD) Power CGD has been assumed to get the low priority by the GoI. Thus it has been assumed that CGD will get the gas as per following table to support the displacement of liquid fuel. Sector (MMSCMD) CGD In cognisance of GoI initiatives to develop India as a refining hub it has been assumed that the refineries will get the gas as per their requirement subject to infrastructure availability which will in turn increase their efficiency and production capacity. Sector (MMSCMD) Refinery Since potential of gas displacing liquid fuels does not exist in Petrochemical sector. Similarly since there are no additional projects to convert to gas, the sponge iron sector also does not hold potential of displacement of liquid fuels by gas. Slide 15 Findings/Conclusions of Study Displacement Analysis- Supply Side Constraints This quantity of 70.5 MMSCMD of gas can supplement displacement of 21.2 MMT of liquid fuels in various identified sectors as against 43.6 MMT of liquid fuels projected to be displaced by the year in an unconstrained gas supply scenario. Sector (MMSCMD) Fertiliser Power CGD Refinery Petrochemicals Sponge Iron Total (Y-o-Y) Cumulative Slide 16

9 Impact analysis Impact on refining capacity Over and above the refinery surplus of MMT projected for the year , additional volume of 21.2 MMT of liquid fuels projected to be displaced by gas is expected to take up the projected refinery surplus to MMT by the year SI Refining Capacity Production of Petroleum Products Demand for Petroleum Products Refining Surplus (2-3) Volume of liquid Fuels displaced 5. by gas Refining Surplus taking into 6. account the displaceable Volume of liquid Fuels (4+5) (Figures in MMT) The Oil Companies and policy makers in tandem need to undertake a detail exercise of strategizing/planning for evacuating the refining surplus taking into consideration the following:- Infrastructure Adequacy to handle this surplus of refined petroleum products Feasibility of further additions to refining capacity Identification of locations for setting up of refineries (coastal/landlocked) Slide 17 Thank You