N the rapidly changing face of the global gas market—and the chal-lenges that lie beyond 2010—one statistic stands out: the growth in LNG is more rapid than that of natural gas. Asia accounts for two-thirds of the world LNG trade, the Americas about 10 per cent and Europe 26 per cent. In order to get into the LNG market you have to play the international game and you have to play it credibly. Look at what Qatar is doing in this market. The coun-try has committed 48 million tonnes of LNG to US and Europe but this com-mitment is not a firm one. Even though the quota is technically committed to the US and Europe, it can be diverted to any other continent or country willing to pay as much or more. If prices are not high enough, the supplier, by diverting this 48 million tonnes to the global mar-ket,is getting interconnected. So it is not correct to say that there is no volume available. Rather, there is no volume available at the lower prices.
gas power plants and expects to pay lower prices, would not be able to bear these prices. Steel companies certainly can. So I don’t think it is correct to say that higher prices will kill demand in India. Higher prices will moderate
The buyers’ market will become a full-blown sellers’ market by next year There are still opportunities to negotiate deals.You have to be smart and savvy and ready to play. Does high demand keep pace with higher prices? In countries like India, if the price of gas is low, the demand is infinite; if the price of gas is high, the demand will be limited.What is the limit of demand at price levels of Say,$6 to $8 BTU which, I think, is a pretty realistic long-term price corre-sponding to the $60 per barrel price of oil? Can the power sector pay for it? Can the industry sector pay for it? Can resi-dential and commercial sectors pay for it? Well, some can and some cannot, so it may be that the gas market will be divid-ed into high-end and low-end. High-end would be the power sector, which is using oil and can pay. But the power sec-tor, which is using existing gas at the lower official prices or hoping to build gas power plants and expects to pay lower prices, would not be able to bear these prices. Steel companies certainly can. So I don’t think it is correct to say that higher prices will kill demand in India. Higher prices will moderate demand in certain sectors but there will still be substantial room for growth, and if those who have to pay higher oil prices find that gas is still competitive they will be able to afford them. But those who hope to get gas at $3 or $3.50 for the power sector may be better off using coal as a competitive alternative.
LNG has an important role to play in the basket of energy and fuel sources in India, but what percentage of this it will constitute and at what price within the next decade is difficult to determine in the absence of a nationally integrated pricing system for these products. The government, in particular Dr Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, has articulat-ed the need for this but a national poli-cy still needs to be formulated in terms of defining bands of end users for a par-ticular form of energy source—gas, LNG, oil, coal, alternative energy, nuclear, and so on—and how the products will be priced.
LNG’s role in this basket is a slow but growing one that cannot be reversed. Domestic gas in India as it stands today, even the latest ONGC price, is negoti-ated at $4.60 BTU. This is not cheap. The old prices are gone. In the new market we can expect a price of between $5 to $6 BTU. Therefore, cer-tain segments that cannot buy at this price have to go back to coal, or to nuclear energy when it becomes avail-able. But I do not think nuclear energy is going to be that cheap either. That is why there needs to be segmentation of sectors according to what option they can afford.
LNG, therefore, becomes part of the gas system in India. If tomorrow Reliance or GAIL or ONGC develop basins and bring more gas to the mar-ket, I do not see them selling it at some price that is not in harmony with inter-national market forces. They would have to sell at the proprietary price, the international price. Whether LNG is a big portion or a small portion is irrele-vant. What has extreme relevance is what happens in the international LNG market. What is needed is for the prices to be proper. That has not yet happened, but I am sure it will in the next few years. The simple adage is, if you do not buy it for the proper price, someone else will.
Looking at the supply options beyond 2009 and 2010, the situation today is that most of the supplies in the markets have been scooped up already and there is not that much room for price maneu-vering or playing with spot cargos. The volumes have already been sold, mostly to the Japanese who have been among the most far-sighted investors in LNG. So, if you want to buy gas beyond 2009-2010 where do you look? There are opportunities next door in Iran and Qatar. But most of Qatar’s volumes have already been committed and it is unclear how much more they will offer. I believe they may offer perhaps 10 to 20 million tonnes more past 2010 but the large volumes are gone.
Iran has exportable gas but not huge amounts,perhaps between 30 to 40 mil-lion tonnes. The greatest prospects may lie in Australia. But Australia has a num-ber of international players in this field, many of them preferred customers with terminals in the US and Europe. But there are also many localized players in Australia who do not have many options but have huge assets and resources. Some of them are expensive grassroots proj-ects,and these players will be looking for strategies beyond 2009 and 2010. This is where huge possibilities lie for India and for PSUs like GAIL—building relation-ships with these uncommitted players, setting up partnerships, creating confi-dence,and preparing to access these sup-plies. I firmly believe that it is possible to start today and make sure that new vol-umes beyond 2009-2010 are available. I think this kind of forward thinking and forward planning and looking beyond are going to make it possible for Indian energy planners to be able to access supplies in this very competitive and tight market
