PRLog - Sep. 13, 2012 - BRISBANE, Australia -- At first glance you wouldn’t expect the list of lessons India’s coal industry could learn from gas to be very lengthy. But it is a surprising list indeed.
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While India’s thermal coal sector has stalled in recent years, plagued by inefficiencies and ruled by a monopoly, the country’s gas sector has taken a different path and proven you can do business in India without all the angst. And just as well, because India finds itself daily on the precipice of an energy crisis as it struggles to keep the lights turned on and the country running.
Coal and gas are vastly different. It would be absurd to suggest that gas could erode coal in Indian power, though with a little bit of imagination it could challenge imported coal in power. But this quiet gas resurgence holds several lessons for imported coal into India.
Amid the din and confusion of coal in India, a different fuel has been quietly and steadily moving in. July LNG imports reportedly increased by about 35% over the previous month, even as Indian traders remained on the prowl seeking US$10-$11/mmbtu cargoes for deliveries over the next two months.
While Parliament remained stalled on ‘coalgate’
Gas industry representatives say that there is unprecedented buoyancy in the market, a sort of a buzz that comes only from a sense of giddy optimism and a scramble. Imports have risen sharply over the last few months with spot purchases now accounting for just over half of the imports.
Interest in LNG facilities have picked up considerably. Promoters and financing are available. More importantly, promoters with an appetite for risk, without need for committed supply or off-take, can be found. Industry sources project that LNG terminal capacity could reach 30-35Mtpa in the next 3-4 years. The growth in gas imports isn’t flowing to power just yet. Gas power capacity, almost 15,000MW, continues to idle with utilization of just 40% for lack of gas. Most of the gas is flowing to fertilizer and refinery, which have a much higher willingness to pay for natural gas than power plants.
The newfound buoyancy in gas imports isn’t all that unexpected. Much of the imports are going to offset the dramatic fall in domestic gas production from the new east-coast gas fields that only two years ago was expected to reach 80mmscmd. Instead, production from these fields today is at 30mmscmd.
Yet, the quiet bounce is important. A few years ago, gas was in tatters. Government had stepped in to determine prices and establish rules for gas allocations that nobody quite understood.
Developments since then have been striking.
First, many Indian companies – private and state-owned, big and small, old and new – are actively pursuing opportunities in the US and Canada, where the promise of shale gas beckons. These companies have demonstrated a willingness to act quickly. State owned companies, in particular, have exhibited an uncanny confidence in signing deals without too much hesitation.
Many of the new deals, as well as the existing deals, are pure supply transactions without a position in the underlying fuel asset. In contrast, the worst advice that Indian coal majors possibly received years ago is that they shouldn’t trust the sanctity of supply chains, that international supply could never be secure without a hand firmly in the underlying asset.
Second, India’s gas industry is emerging as a congruous whole, composed of segments working together in tandem. Perhaps inspired by the tacit agreement between India’s richest brothers, the Ambanis, when they split up the power and gas production business between them with a no-compete clause, the Indian gas business is neatly segmented.
Gas producers stick to production; traders stick to trading; power plants stick to electricity production. There is little vertical integration. Even in cases where there is vertical integration, gas producers or traders rarely compete in the same end-product against entities to whom they also sell gas.
Indian coal markets are far more convoluted. The differences between the segments of the supply chain are blurred. Traders are also power producers, steel or cement manufacturers. Power producers and industries are also coal miners. Everyone is doing, or for some odd reason wants to do, a bit of everything else as well.
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