According to Oil and Gas Journal (OGJ), India had 38 trillion cubic feet (Tcf) of proven natural gas reserves as of January 2009. The EIA estimates that India produced approximately 1.1 Tcf of natural gas in 2007, up only slightly from 2006 production levels. The bulk of India’s natural gas production comes from the western offshore regions, especially the Mumbai High complex. The onshore fields in Assam, Andhra Pradesh, and Gujarat states are also significant sources of natural gas. The Bay of Bengal has also become an important source of natural gas for the country.

In 2007, India consumed roughly 1.5 Tcf of natural gas, approximately 100 Bcf more than in 2006, according to EIA estimates. Natural gas demand is expected to grow considerably, largely driven by demand in the power sector. The power and fertilizer sectors account for nearly three-quarters of natural gas consumption in India. By 2030, EIA expects Asian demand for natural gas to more than double, and India is expected to be responsible for a sizeable part of that growth. Natural gas is expected to be an increasingly important component of energy consumption as the country pursues energy resource diversification and overall energy security.

Although India’s natural gas production has consistently increased, demand has already exceeded supply and the country has been a net importer of natural gas since 2004. India’s net imports reached an estimated 353 Bcf in 2007. India imports natural gas via liquefied natural gas (LNG).

As in the oil sector, India’s state-owned companies account for the bulk of natural gas production. State-run companies ONGC and Oil India Ltd. (OIL) are the main producers of natural gas in the country. According to government statistics, ONGC accounted for 69 percent of natural gas production in the country in 2007. In addition, some foreign companies participate in upstream developments in joint-ventures and production sharing contracts (PSCs). Privately-owned Reliance Industries will also have a greater role in the natural gas sector in the coming years, as a result of a large natural gas find in 2002 in the Krishna-Godavari basin.

Natural gas prices in India are also regulated by the government. Natural gas produced by state-owned companies is sold in accordance with the Administered Pricing Mechanism (APM). Gas produced from fields acquired through NELP, production sharing agreements, and imported LNG is not priced using the APM, although its price is also regulated.

The Gas Authority of India Ltd. (GAIL) holds an effective monopoly on natural gas transmission and distribution activities. In December 2006, the Minister of Petroleum and Natural Gas issued a new policy that allows foreign investors, private domestic companies, and national oil companies to hold 100 percent equity stakes in pipeline projects. While GAIL’s monopoly in natural gas transmission and distribution is not guaranteed by statute, it will continue to be the leading player in the sector because of its existing natural gas infrastructure. The country has a number of major domestic pipelines in its domestic transmission network with ambitious plans to extend them further. GAIL’s current natural gas trunk pipeline network extends roughly 4,100 miles, according to the company and, according to PFC Energy, the Government of India plans to spend about $9 billion to upgrade the transmission network and extend the system.

While India is not expected to be a significant contributor to the upstream oil sector, the outlook for the upstream natural gas sector is more positive, although the IEA forecasts that natural gas production in India will peak between 2020 and 2030. Most natural gas production in India comes from fields off the western coast, including the Mumbai High complex and the Tapti, Panna, and Mukti fields, while the major onshore fields are located in the northeast, in the areas of Assam, Andhra Pradesh, and Gujarat. The Bay of Bengal has also recently become an important area of reserves, in particular in the Krishna-Godavari basin. GAIL recently announced plans to invest $35 million in exploration and production projects in northeastern areas of the country, particularly in Assam, which are likely to be difficult to develop due to the terrain and increasing violence from separatist rebels. In addition, ONGC formed plans to invest $2.4 billion for E&P oil and gas projects in the same region.

There have been some large natural gas finds in India over the last several years, predominantly offshore in the Bay of Bengal. In December 2006, ONGC announced that it had found an estimated 21 to 22 Tcf of natural gas in place at the KG-DOWN-98/2 block off the coast of Andhra Pradesh in the Krishna Godavari basin. In addition, in August 2008, the company made four new finds in the GS-15-OA block in the same basin. ONGC also announced another find in 2006 in the Mahanadi basin off the coast of Orissa state, with an estimated 3 to 4 Tcf reserves in place. These discoveries fit into the recent trend of large upstream developments in the Bay of Bengal, especially in the Krishna Godavari basin. In addition, state-owned Gujarat State Petroleum Corporation (GSPC) holds an estimated 1.8 Tcf of natural gas reserves at the KG-OSN-2001/3 block in the Krishna Godavari area, a substantial holding for the company.

Another key find is Reliance Industries’ D-6 block in the Krishna-Godavari basin, which holds estimated reserves of 11.5 Tcf. Natural gas production in this field began in late 2008. Reliance and its equity partner Niko Resources have reportedly invested $8.7 billion in the deepwater project, which is expected to supply 2.8 Bcf/d of natural gas at its peak. In order to transport the gas throughout the country, GAIL has recently completed a pipeline linking the Krishna-Godavari basin with existing gas transport infrastructure. The finds in the Krishna-Godavari basin are expected to double the country’s current natural gas output in coming years.

Companies are working to produce as much as possible domestically from current fields due to the widening supply and demand gap. ONGC has worked to maximize its recovery rate at the Mumbai High structure, which supplies the bulk of the country’s natural gas at present, and is investing in facilities to develop its marginal fields. BG International and Reliance Industries are also jointly working to expand production at the Tapti, Panna, and Mukti fields in the Mumbai High basin. Despite these large finds, natural gas demand in India is expected to outstrip new supply in the years ahead.

Analysts expect that India’s natural gas import demand will increase in the coming years. To help meet this growing demand, a number of import schemes including both LNG and pipeline projects have either been implemented or considered.

India has considered various proposals for international pipeline connections with other countries. One such scheme is the Iran-Pakistan-India (IPI) Pipeline, which has been under discussion since 1994. The plan calls for a roughly 1,700-mile, 5.4-Bcf/d pipeline to run from the South Pars fields in Iran to the Indian state of Gujarat. While Iran is keen to export its abundant natural gas resources and India is in search of projects to meet its growing domestic demand, a variety of economic and political issues have delayed a project agreement. Indian officials have made it clear that any import pipeline crossing Pakistan would need to be accompanied by a security guarantee from officials in Islamabad. Apart from security concerns, natural gas pricing disputes have also held up an agreement. Both Indian and Pakistani officials refused Iran’s proposed price of $8.00 per million Btu (MMBtu), stating that they would not pay more than $4.25/MMBtu. Due to the uncertainties involving this pipeline, the Indian government’s 11th Five Year plan does not project any gas supply from this route or the following two discussed pipelines (see the Iran Country Brief for more information).

India has worked to join onto the Turkmenistan-Afghanistan-Pakistan Pipeline (TAP or Trans-Afghan Pipeline). With the inclusion of India, the project consists of a planned 1,050-mile pipeline originating in Turkmenistan’s Dauletabad natural gas fields and transporting the fuel to markets in Afghanistan, Pakistan, and India. In 2008, all parties agreed to induct India as a full member into the project, thereby renaming the pipeline TAPI. TAPI will have a capacity of 3.2 Bcf/d and work is expected to commence in 2010, with supplies scheduled to flow in 2015. Concerns about the project have included the security of the route, which would traverse unstable regions in Afghanistan and Pakistan. Furthermore, a review of the TAPI project raised doubts about whether Turkmen natural gas supplies are adequate to meet proposed export commitments.

A third international pipeline proposal envisions India importing natural gas from Myanmar. In March 2006, the governments of India and Myanmar signed a natural gas supply deal, although a specific pipeline route has yet to be determined. Initially, the two countries planned to build a pipeline that would cross Bangladesh. However, after indecision from Bangladeshi authorities over the plans, India and Myanmar have studied the possibility of building a pipeline that would terminate in the eastern Indian state of Tripura and not cross Bangladeshi soil. A proposal to build a pipeline between Myanmar and China may interrupt India’s pipeline plans, however.

India is working to enhance its presence in Myanmar in light of its neighbor’s large natural gas reserves. Both GAIL and ONGC are investing large sums to obtain access to blocks of the Swe field containing 200 billion cubic meters (7 Tcf). India recently signed a deal to build two hydroelectric power plants in Myanmar, largely perceived as an effort to boost relations between the two countries and enable further gas supply deals.

India began importing liquefied natural gas (LNG) in 2004. In 2006, India imported 254 Bcf of LNG, making it the seventh largest importer of LNG in the world. India’s LNG imports in 2006 came from Algeria, Egypt, Nigeria, Oman, Qatar, United Arab Emirates, Australia, and Malaysia. Qatar was by far the largest supplier in 2006, accounting for nearly 86 percent of imports. India imports LNG through both long-term contracts and spot shipments.

Currently, India has two LNG import terminals, with several others that are planned or proposed. India started receiving LNG shipments in January 2004 with the start-up of the Dahej terminal in Gujarat state. Petronet LNG, a consortium of state-owned Indian companies and international investors, owns and operates the Dahej LNG facility with a capacity of 5 million tons per year (mta) (975 bcf/y). India’s second terminal, Hazira LNG, started operations in April 2005, and is owned by a joint venture of Shell and Total. The facility has a capacity of 2.5 mta (488 Bcf/y), which may be expanded to 5 mta (975 Bcf/y) in the future.

In addition, Petronet LNG is currently finalizing a deal with a Japanese consortium to build a 2.5 mta (488 Bcf/y) LNG import facility at Kochi. The project is expected to cost US$500 million and is partially funded by the International Finance Corporation. The facility is expected be completed in March 2012 and will potentially be expanded to a capacity of 5 mta (975 Bcf/y). Petronet LNG plans to sign a long-term LNG supply deal with Australia’s Gorgon LNG project for 2.5 mta (488 Bcf/y) in early 2009.

Another proposed LNG facility is the 5 mta (975 Bcf/y) LNG processing plant in Dabhol. Following delays in the plant’s early stages, the Ratnagiri Gas and Power Company purchased the Dabhol Power Company in 2005. Dabhol is currently operating a power plant, but the LNG receiving terminal is not scheduled to begin operations until the first half of 2009. In addition, several other companies are studying possible LNG import sites around India, such as GAIL’s Ennore LNG terminal at Tamil Nadu, scheduled for commissioning in 2011.

In order to secure supply of natural gas to India and meet growing demand, India is currently looking to invest in liquefaction projects abroad. For example, ONGC and the UK-based Hinduja Group are considering service contracts in Iran to supply 5 mta (975 Bcf/y) of LNG to India. The country is also exploring the possibility of investing more in the Sakhalin I LNG project.

Long-term growth in demand for LNG remains unclear however, as price is an issue of contention in India and increasing domestic natural gas production is expected from eastern offshore fields. Industry analysts note that Indian companies appear unwilling to commit to long-term LNG supply contracts at international prices. While negotiations are currently underway for several long-term LNG supply deals, whether or not India’s bids will be accepted is questionable in light of the low prices that India has offered to pay. Instead, India is becoming an important destination for spot LNG cargoes.