Three companies with a combined investment of Rs 1,26,000 crore ($30 billion) are at the centre of India's effort to wipe out its gas deficit, halve the power deficit and change the fortunes of fertiliser companies.

The protagonists are Reliance Industries Ltd [Get Quote], Oil and Natural Gas Corporation and Gujarat State Petroleum Corporation, which are investing the money in producing gas from the Krishna-Godavari basin, dubbed the North Sea of India due to its huge gas prospects.

Once all of this gas from the area off the Andhra Pradesh coast comes on stream, India, Asia's third largest importer of oil, could shave at least $20 billion (Rs 89,200 crore) off its surging oil import bill, which is projected to cross $80 billion this financial year, said officials of various oil companies and analysts tracking the sector.

The basin is likely to produce 120 million cubic metres per day (mcmd) of gas, which is four times the gas that the country would have received from Iran through the Iran-Pakistan-India pipeline. Besides, the KG basin gas is likely to be 30 per cent cheaper than the Iran gas.

Production from the KG basin hinges on two court battles being fought by Mukesh Ambani-controlled RIL, which will be the first to pump gas from the basin. In the first, Ambani's younger brother, Anil, is demanding gas for 17 years for a proposed power plant in Uttar Pradesh. The second case relates to state-owned NTPC Ltd's [Get Quote] claim that it has a firm contract for supply of gas, which RIL denies.

There is uncertainty on when the KG basin output will be available. However, whenever the gas becomes available, it will have a huge impact on the country's fertiliser and power companies.

"In one stroke the KG gas can halve the country's power deficit and reduce dependence on urea imports by more than 50 per cent," said an executive with RIL.

RIL, ONGC [Get Quote] and GSPC have discovered gas, with some oil, in three different blocks in the KG basin. Reliance is planning to spend $12 billion on producing and transporting the gas across the country.

ONGC has announced $3 billion investment in the area and officials say the final figure could be over $10 billion. "This will help increase the country's gas availability by a third from the current levels," said a top ONGC official, who did not want to be named because the government has not approved the production figures.

GSPC claims that its gas reserves are 20 trillion cubic feet, which is 50 per cent higher than the largest reserves found in Brazil and Malaysia recently.

Hopeful users

Power and fertiliser plants, which consume 70 per cent of the gas available in the country, hope that the gas will help them operate at full capacity. Inadequate gas forces them to operate at 50-60 per cent of capacity.

"The KG basin could change the fortunes of the ailing fertiliser sector," said an official of Fertiliser Association of India, the industry body which represents the country's fertiliser companies.

Urea manufacturing plants across the country converted to gas from naphtha a year ago. "We are using naphtha or imported gas which more than doubles our costs," said a Chambal Fertilisers executive. The company will increase its urea producing capacity by 15 per cent from the current 1.9 million tonnes a year if more gas becomes available.

The fertiliser industry has not seen any new investments in the last decade. Once more gas becomes available, the companies may increase capacity to 22 million tonnes in two years from the current 20 million tonnes. Now, the industry needs 41 mcmd of gas, but gets only 28 mcmd.

"We converted into a gas-based facility a year ago, but we still don't have firm gas contracts with any player. We are in talks with various suppliers for gas as it is cheaper than naphtha," said Ajay Shriram, chairman and senior managing director, Shriram Fertilisers and Chemicals. The company produces 700 tonnes of ammonia and 1,200 tonnes of urea a day.

Power on the rise

Once all the gas from the KG basin begins to flow, perhaps after 2013, it can add at least 10,000 Mw to the country's power output. That is more than half the country's current peak power deficit.

Around 3,000 Mw of gas-based power capacity is currently lying idle, while the country plans to add another 4,200 Mw of gas-fired capacity till 2012.

The gas, the price of which has been approved at $4.20 per million British thermal unit (mBtu) by the government, will bring down the cost of the power by 60 per cent. The KG basin gas is expected to cost $7 per mBtu, after adding transport and taxes. The alternative naphtha and imported gas cost above $25 per mBtu.

Maharashtra Power Generation Company's Uran power plant is sourcing 1 mcmd gas from onshore KG basin fields at $4.52 per mBtu. This will ramp up Uran's capacity by 175 Mw, according to the company's managing director, Ajoy Mehta.

Transporting the fuel

RIL's $4 billion pipeline from Kakinada to Gujarat is almost complete. The company has obtained approval to lay two more pipelines to Bengal and to Tuticorin. "These pipelines will feed not just the industries along the route but also supply gas to retail consumers in Chennai, Bangalore, Mangalore, and other cities," said the RIL executive.

The first of this gas, from Reliance's D6 block in the area, is still under dispute with Anil Ambani's group claiming it has the right to a part of that gas. "We are hoping there will a decision soon. But we know that the case will go on for a while longer. It remains to be seen when the production of this gas will begin," said the executive of a Delhi-based fertiliser company, which recently had to partially shut its plant in central India due to a lack of gas.

Back to deficit in 2012?

A government estimate has projected that the demand for gas will exceed supply by 80 mcmd in 2012, about 90 per cent of today's supply. This is after taking into account the output from the KG basin at that time. That is because many companies are expected to convert to gas after the supply from the KG basin begins. So in 2012, India would again be a gas-deficit country with dependence on imports.