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Making way for gas-on-gas competition

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July 22, 2013 | Financial Chronicle Bookmark and Share  

12 July 2013

The long-awaited decision to increase gas price has finally been made. In an interview with Vikas Srivastav, Iftikhar Nasir, CEO, E&P, Essar Energy, says the increase would allow the industry to get closer to a fairer risk-reward balance. Excerpts:

How would the recent government decision to increase the gas price from $4.2 per mmBtu to $8.4 per mmBtu impact the market?

This is a step towards a more market-orientated price, which should ultimately lead to gas-on-gas competition when sufficient development and infrastructure are in place. This will provide a degree of certainty that if you are willing to invest and take the risks associated with E&P, there is a fairer risk/reward potential. It will help stimulate more investment in indigenous gas and start to reduce the growing reliance on gas imports to meet demand.

Do you think the announcement was long awaited by the industry and would propel companies to look at E&P activity as a lucrative business?

Yes, it is long awaited and yes, it should drive greater investment into the sector. It is not as if it is a lucrative business, but across the world it is recognised that E&P, and gas in particular, is a high-risk investment. So this increase in price allows us to get closer to a fairer risk/reward balance when companies are looking for where to invest. The other thing that is long awaited is a smoother process for receiving various approvals including environmental clearances and forest clearances. The time it takes to receive these can lead to the economics of a project being severely impacted.

What kind of benefits are visible for Essar Energy/Essar Oil following the recent announcement? Does it require any change in strategy to reap maximum benefits?

It will allow our current development of Raniganj to be profitable and thereby support investment in our other blocks (Rajmahal in Jharkand, Sohagpur in Madhya Pradesh/Chattisgarh and Talchir and IB Valley in Orissa) with more vigour. Besides, we would be looking at the overall hydrocarbon portfolio for development. This would include the offshore Mumbai NELP asset, and the shale gas assets that would be explored after the shale gas policy comes up. Overall, it’s an interesting development that would invigorate the sector and associated infrastructure as well as offering employment-related benefits.

Would Essar Energy be interested in entering into LNG business looking at the current scenario of the demand-supply gap and almost 30 per cent of the gas being imported from abroad giving suppliers good margins?

We have no plans to progress LNG at this stage. However, we continue to look at a variety of business opportunities within the sector. Our intent is to develop the domestic gas capability.

By when can we expect Essar to start exploration work at its Indian assets and even abroad? In India, which O&G assets would you be looking at on a priority basis?

We have 4 other blocks in which we are already looking to attain production exploration licences, starting with Rajmahal. We will also look to progress shale gas in Mehsana, subject to appropriate approvals, and in other areas. However this will need further policy development, which we are working with MOPNG in developing, including simultaneous development of hydrocarbons across a chosen geography and the new shale oil/gas policy.

Do you think the gas price hike decision by CCEA could be motivated with elections around the corner? Also, the real beneficiaries seem to be private companies alone, since the government has specified that high cost burden would not be passed on to the power and fertiliser companies?

I do not believe the gas price decision is in any way connected to the elections. Making investments in gas E&P in India is a more attractive proposition and has significant logic and benefits for the country: It would bring in new investments to the sector, further increase the job prospects, both direct and indirect, and make industries around such development that currently pay much higher costs for energy — as there is little domestic gas available — to instantly be more competitive in their sectors and markets as a consequence of lower energy costs.

Also, making them more profitable means higher tax payments and potential to grow, giving even more employment opportunities. The higher gas price would also reduce the net cost of gas in the country, which will otherwise become increasingly dependent on gas imports, if there is no investment. Besides it would bring down the pressure on foreign exchange reserves.

Clearly, with the drive to reduce emissions, although natural gas is not emission-free, it has a significantly lower environmental impact than all other fossil or hydrocarbon fuels.
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