The global economic downturn notwithstanding, most countries are still making a dash for natural gas. An example is how desperate the Anil Dhirubhai Ambani Group is to get Krishna Godavari Basin gas found by Mukesh Ambani-controlled Reliance Indsutries to feed its proposed power units.
This craving for gas is happening when the world oil demand contracted in 2008 for the first time in 25 years, sending crude oil price down to less than $40 a barrel now from the mid-July high of $147 a barrel.
Based on the IMF assumption that the global economy will gradually recover from the second half of this year, energy experts are saying oil demand will see growth again in 2009, but on a downward adjusted 86.3 million barrels a day. Though it will not find justification in its current prices, the underlying demand for gas remains firm unlike oil.
If gas prices are flagging after a five-year bullish phase, it is primarily because gas will invariably rise and fall in tandem with oil. As we know, gas is primarily used for power generation and heating and as feedstock for fertiliser units. In fact, the worldwide trend is to migrate from other fertiliser feedstocks such as naphtha and oil to gas.
Gas-based fertiliser units here are, however, not getting adequate supply of the feedstock as the country’s own gas generation of around 86 MMSCMD (million metric standard cubic metre per day) falls way short of the demand for 235 MMSCMD. According to official estimates, India will need at least 315 MMSCMD by 2012 and the requirements will further rise to nearly 400 MMSCMD by 2025.
No one knows if the proposed gas pipeline from Iran to India through Pakistan will ever be laid and when Bangladesh will agree to sell gas to us. In the meantime, our import needs will continue to rise at an annual rate of not less than 8.5 per cent.
Power sector is and will remain the biggest user of gas. However, this is the only gas-consuming segment where demand will always remain price-sensitive. Gas prices will always come to be compared with coal prices.
What, however, works to the advantage of gas is that all user sectors, including power, are largely recession-proof. At the same time, unlike oil, gas needs to be piped and used as soon as it is recovered from onshore and offshore sites. Inability to store gas, unless liquefied, curbs the capacity of producers to influence prices.
