BP & Reliance JV Boost Gas Generation in India

BP and Reliance Industries have set up a joint venture company that aims to supply natural gas to the domestic market from its main production blocks and pursue LNG imports in an effort to boost the share of gas in India’s energy basket, the CEO of the new venture said.

Vinod Tahiliani, CEO of India Gas Solutions, a 50:50 JV between BP and Reliance, said energy reforms and infrastructure projects undertaken by the Indian government would help transport and distribute gas more efficiently in the coming years, which in turn will boost accessibility of the cleaner fuel in Asia’s fast growing energy market.

“We aim to be the most reliable and competitive gas supplier to the Indian market,” Tahiliani told S&P Global Platts in an interview.

“IGS is actively marketing domestic natural gas produced from Block KG D6 and pursuing options to import and market LNG in India to provide tailor-made solutions to help gas customers manage their risk while receiving predictable and sustainable supply,” he added.

India consumes over 5 Bcf/day of natural gas and aspires to double this consumption by 2022. Gas currently accounts for under 7% of India’s total energy mix compared with the world average of over 20%. Prime Minister Narendra Modi has set a target to boost this share to 15% in the coming years.

In June 2017, Reliance and BP said they would jointly invest up to $6 billion to develop already-discovered deepwater gas fields off the east coast of India, which would help boost gas output by 30 million-35 million cu m/d (1 Bcf/d) in a phased manner over 2020-2022.

The two companies are also moving ahead with the development of the R-Series deepwater gas fields in Block KG-D6, where Reliance made the biggest gas discovery of India.

“With a strong outlook for sustained GDP growth, combined with increasing oil and gas infrastructure and large volumes of new production slated to come online in the future, we can see a very positive outlook for both oil and gas demand and supply,” Tahiliani said.

“By complementing its competitive domestic gas supply with advantaged LNG, IGS will create a unique customer offer,” he added.

GROWTH POCKETS

Tahiliani said that with growing environmental and air quality concerns and the focus on the use of cleaner fuel, India’s city gas distribution (CGD) sector is likely to see strong demand for natural gas as compressed natural gas as well as piped gas in the coming years.

“With a diverse and large customer base — residential, transport, industrial and commercial — CGD offers sustainable and steady demand over a long period,” he said, adding that growth in gas infrastructure could further expand the market with new opportunities such as the use of CNG and LNG in freight.

“Also for the power sector, gas is the ideal complement to renewables as it can be a lower carbon, cost-effective back-up to the variability of wind, solar and hydropower generation,” he added.

Highlighting the 2018 edition of the BP Energy Outlook, Tahiliani said that India’s energy consumption is expected to grow at 4.2%/year between now and 2040, fastest among all major economies in the world. Gas will be a key part of this growth, with consumption expected to nearly triple from 5bcf/d to 14 bcf/d.

THE PRICE ISSUE

Domestic production currently accounts for half of the country’s total gas consumption, Tahliani said, adding that rising oil prices were unlikely to hit India’s gas demand growth.

“With gas price increasingly delinked from oil prices, gas becomes more competitive vis-a-vis alternative liquid fuels with rising oil prices. Demand is expected to increase due to higher economic growth, to ensure less dependency on imported crude and a desire to use cleaner fuel,” he added.

Tahiliani said that historically, controlled gas prices had resulted in lower upstream investment in India. But the government has now provided marketing and pricing freedom for new gas projects and is also pursuing market reforms such as unbundling “content” from “carriage” and developing a gas hub. “This provides the right climate for investment,” he said. “We believe this will lead to investment in gas infrastructure which will enable further growth in the gas market and substitution of liquid fuels. This in turn will culminate in an increase in investments in exploration and production and augment domestic production.”

Tahiliani said that the development of liquid markets increases competition and results in more efficient pricing and the government’s plan to set up a gas exchange was a step in the right direction.

The government is aiming to create a gas hub by October 2018.

Tahiliani said as part of the hub plan, the government was aiming for legal, financial and physical separation of network operators from network users. It would also include non-discriminatory access to gas infrastructure and uniform transmission tariffs.

The government plans to ensure that current domestic gas production is released from price and market controls, which will create liquidity at the hub for price discovery, he said, adding that the gas exchange will ensure transparency and access to information for all market participants.

“It also aims for the inclusion of natural gas under the new goods and service tax scheme, which will help the industry,” he said.