Investment in Indian Gas Pipeline Network Forecast to Reach $9.2 Billion by 2012

The Associated Chambers of Commerce and Industry of India, the apex industrial body in India, and Ernst & Young Global Limited (London), a leading global professional services organization, have estimated a total investment of $9.2 billion over the next five years for laying the gas pipeline network in India, according to Industrial Info Resources (Sugar Land, TX). The study is part of a paper titled "Indian Oil & Gas Sector: Rising Business Opportunities" jointly published by both organizations. The rapid growth in the Indian petroleum sector calls for a robust country-wide pipeline infrastructure.

India has an existing gas pipeline network spanning 10,000 kilometers of which Gas Authority of India Limited (BSE:532155) (GAIL) (New Delhi), India's largest gas-transmission and marketing company, owns 55 percent. The remaining 45 percent is held in partnership with the private sector. The private players are active primarily in the downstream sector.

GAIL has a vision of creating a National Gas Grid in India to connect gas sources with consumption centers. The gas grid is conceptually similar to India's Power Grid and will ensure a common distribution and transmission network throughout India. In order to implement the grid, a few pipeline projects have been initiated that include the Dahej-Uran pipeline project, the Dabhol-Panvel pipeline project and the Jagoti-Pithampur pipeline project. This cross-country integrated project will run across 15 states through a high-pressure interstate gas-pipeline network stretching over 8,000 kilometers. GAIL's gas supply (upstream) comes from indigenous gas fields and imports. Gas from future transnational gas pipelines from Myanmar and Iran could be transported to different consumption centers (downstream) in the country.

Reliance Industries Limited (BSE:500325) (Mumbai), India's largest private-sector enterprise, is also involved in small pipeline projects that include the 1,400-kilometer Kakinada-Hyderabad-Uran-Ahmedabad pipeline and the Kakinada-Vajaywada-Nellore-Chennai pipeline. The Kakinada-Chennai pipeline with a scope for extension to Tuticorin and Bangalore covers the southern region. The petroleum majors are also eyeing the possibility of developing a network along the 1,100-kilometer Kakinada-Howrah route. Pipelines emanating from Kakinada are of strategic importance to the company as it owns and has recently started production in the Krishna-Godavari basin. Gas production is likely to begin early in 2009.

States that have existing regional pipeline networks include Gujarat, Andhra Pradesh, Assam and Tripura. Gujarat is laying a 1,200-kilometer Gujarat gas grid while Andhra Pradesh has further invested in augmenting the present gas distribution network.

The study estimates that an additional $16 billion will be required by 2015 to enhance the pipeline infrastructure. This will primarily be used for gas transportation to consumers and will be developed jointly with the private sector.

Oil and gas contributes to 36 percent of the total energy generated in India today. Its share in the energy mix is expected to go up to 41 percent within a decade, while coal remains the primary source of energy in India. While recent initiatives by the Indian government to promote the oil and gas sector such as the New Exploration Licensing Policy (NELP) and tax holidays under certain conditions for exploration projects have been applauded, the study also recommends changes to NELP to attract more investors for domestic exploration projects. Investments are important to fund exploration amidst the ongoing global liquidity crunch.

The study highlights the limited availability of oil and gas resources and recommends government regulations to ensure gas is used only in cooking, automobiles and as an input for fertilizers.