Indian firms hope to find large gas reserves off the country's east coast, threatening the viability of massive investments to import liquefied natural gas, officials and analysts said on Friday.
Firms are stepping up exploration after Reliance Industries Ltd said in October it found 7 trillion cubic feet of gas in the Krishna-Godavari basin where Oil and Natural Gas Corp and Britain's Cairn Energy also found gas.
"I expect more discoveries," Petroleum Minister Ram Naik said.
"The entire belt from the southeast coast up to Bangladesh seems rich in gas. We are exploring a block south of West Bengal and we are very hopeful," added Prashanto Banerjee, chairman of India's largest gas marketing firm, GAIL India.
India could attract global oil majors, which have not bid for exploration blocks in India so far, analysts said.
If India found another gas field as big as the one Reliance discovered, the economics of LNG would change, analysts said.
"If there is another discovery of a similar size, it would certainly affect LNG projects," said Alister Morrison, an analyst at Wood Mackenzie in the United Kingdom. "There is potential for further reserves but nothing has been proved at this stage."
Already, Indian Oil Corp, India's largest refiner, is reviewing plans to build a $1.5-billion terminal to import LNG at a port near the new gas field.
The government is keen to import LNG because India produced 65 million cubic metres (2.3 billion cubic feet) of gas a day in 2001-02, less than half the demand of 151 million cubic metres and Reliance's gas would add only 25-35 cubic metres a day.
Petronet LNG, a firm promoted by state oil firms, and Shell India are going ahead with plans to spend $500 million apiece to build LNG terminals in the western state of Gujarat by 2004.
Shell and Petronet have started construction but a dozen others who had planned LNG imports are lying low.
Petronet's $500-million project is funded by equity and loans guaranteed by state-run energy firms which are pressing the government for tax breaks and low customs duty on gas.
Analysts said the government was expected to grant some concessions.
It is also planning to free gas prices, which are currently fixed at half the international level to provide cheap power and fertilisers. A higher local price would make LNG competitive.
Analysts said the recent gas discovery did not rule out the viability of LNG imports by Shell and Petronet, but their customers were unlikely to sign the 20-year, take-or-pay contracts that LNG suppliers traditionally demand.
"It is turning out to be a buyers' market," said a top official of India's largest power firm, the National Thermal Power Corp, which is being wooed by both Shell and Petronet.
NTPC expects LNG suppliers to agree to a fixed price without any linkage to crude oil prices.
"Krishna-Godavari gas will fundamentally alter the mindset and the bargaining position of the players," said Vishvjeet Kanwarpal, managing director the Asia Consulting Group in New Delhi.
"An industry used to staid long-term perspectives has suddenly been thrown into a whirlwind of revised strategies, visions, opportunities and risks. And this is only the beginning. Few doubt that there is a lot more gas to be found."