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Monetising gas may not be easy for Reliance

Pradeep Puri in New Delhi

The discovery of natural gas in the deep waters of Krishna-Godavari basin may not prove to be a money-spinner for Reliance -- not in the short run, at least.

It will take years for the consumption to come up in the eastern part of the country, where the gas has been struck, and before Reliance can start monetising this gas.

Industry observers say while there is an acute shortage of natural gas on the western coast of the country, where power and fertiliser plants are gasping for natural gas, the demand for gas on the eastern coast is minimal.

According to Gail India Ltd data, in 2004-05, the Krishna-Godavari area will face a deficit of a only 8 million standard cubic metres per day (mmscmd). If Reliance starts supplying 40 mmscmd of gas in 2004-05, it will lead to the problem of plenty.

The two biggest consumers of natural gas are power and fertiliser plants. According to Gail India, 40 per cent of the natural gas produced in the country is consumed by the power sector, 40 per cent by the fertiliser sector.

A greenfield power project takes five years to come up from the zero date. Even if preliminary work, like acquisition of land and construction of roads, has been done, a "decent size" power plant will take at least three years to become operational. Fertiliser plants also take similar time to come up.

But no significant power or fertiliser plant has been planned for the area.

If the authorities start planning today, it will take five years for these plants to come up, whereas Reliance gas will be available in three years.

In any case, observers say, investment in the power and fertiliser sectors is not forthcoming because of the delay in the reforms.

It is unlikely that someone will invest in these ventures at a time when major policy issues concerning their viability are yet to be sorted out.

And domestic consumers are unlikely to be able to consume a significant part of the 40 mmscmd of the discovered gas.

Moreover, domestic supply of gas is always an expensive exercise since it involves laying of an array of small and big pipelines.

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