Wednesday, January 31, 2007

Why Invest in India - Natural Gas Distribution

Natural gas is a fossil fuel of choice for domestic use: heating & cooking, for generating electricity and for industries in the USA & Europe. But in India, the use of natural gas has lagged behind the demand for decades. Mainly due to government monopoly over Natural gas distribution through GAIL. Due to this monopoly, gas fields in India are undeveloped and natural gas is under used in all segments of economic activity. The map shows how little the government has developed the gas transportation network - the current network touches only 10-15% of the total customer base.
The use of this clean burning fuel has so much latent demand - that new investors can tap easily into this demand and reap rich benefits.

The fast paced growth of Indian economy and the need for energy has led to deregulation of gas distribution business. The state monopoly has been dismantled by allowing private companies to setup new pipelines. Reliance Industries Limited is now building an East-West pipeline to transport the gas from its gas fields in the east coast of India to Gujrat and Northern India. RPL is also building a pipeline to connect its gas fields to the southern city of Chennai.

Government is also considering private investments to build pipelines from Russia, Central Asia, Iran to India. Another proposal is to build pipeline to ship gas from Myanmar to India and another pipeline to transport gas from Bangaldesh to India. Tata’s were in talks to build this pipeline - but it later withdrew from the negotiations owing to political bickering in Bangladesh and the local Anti-India stance of Bangladeshi politicians.

While the cross-border pipelines carry high political risks, they also promise a very high returns. This kind of investments are ideally fit for Fortune-50 type(Exxon-Mobil, Shell, British Gas, Texaco etc) companies who can leverage the influence of US/UK governments to protect their investments.

Local Demand

The local demand for natural gas is very high - provided the costs of transportation is worked out. The use of natural gas as fuel for automobiles, cooking and industries in cities is a huge untapped demand. The key to tap into this untapped market is to build a city distribution pipeline. Large metropolitan cities of India: Ahmedabad, Hyderabad, Chennai, Delhi, Kolkata and Pune will be connected with transportation pipelines. Additional investments in a city distribution pipelines will enable companies to tap into this huge untapped demand.

Another potential latent customer is the electricity generation units - basically new units which will be setup in the coming years. Since India is poised to setup power plants to generate 100,000MW - the demand from such plants will be huge. Existing industries such as metals, fertilizers, chemicals etc are also potential customers.

Closing Thoughts

Investing in gas distribution and transportation business brings huge returns. But this also involves building an influential lobby with the government and tie ups with the production companies - ONGC, Crain, RIL, GSPC, Essar etc. For global energy players (Shell, British Gas, Texaco, etc), a JV with an existing company which has proven gas reserves will create a synergy for both entities to reap rich dividends.
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velozrc said...


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Natti said...

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aRivU said...

Really a good, simple and best collection of informations.... gr8 work buddy..