31st October , 2017 I Industry Research Natural Gas: The Fuel of … Gas Report.pdf · Industry Research I OIL & GAS SERIES: NATURAL GAS 4 production of oil and natural gas and due

Overview

Natural gas is a mixture of gases which are rich in hydrocarbons.

Natural gas reserves are found deep inside the earth near other solid &

liquid hydrocarbons beds like coal and crude oil. If found associated

with crude oil deposits, natural gas is known as “associated gas” or if is

found as free gas from independent gas fields it is known as “non-

associated gas”. Natural gas is also found entrapped in underground

coal-bed deposits (known as “CBM”).

Natural gas is odourless, colourless and lighter than air and produces

very few emissions. It is considered the cleanest fossil fuel because of

its clean-burning qualities.

Natural gas is not used in its pure form; it is processed and converted

into cleaner fuel for consumption. Many by-products are extracted

while processing of natural gas such as propane, ethane, butane,

carbon dioxide and nitrogen which can be further used. Composition of

natural gas varies from field to field.

Natural Gas comes in four basic forms: LNG, R-LNG, CNG and PNG.

Liquefied Natural Gas (LNG) is the natural gas which is cooled and

compressed into liquid state to facilitate storage and transportation.

LNG is predominantly methane and occupies about 1/600th the volume

of natural gas when cooled at approximately −162 °C (−260 °F).

Regasified Liquefied Natural Gas (RLNG) – LNG Re-gasified before

transporting it to consumers through Pipelines.

Compressed Natural Gas (CNG) is natural gas which is compressed to

1% of its volume by applying high pressure (3,000-3,600 psi) and

usually stored in hard containers.

Piped Natural gas (PNG) is Natural Gas distributed through a pipeline

network that has safety valves to maintain the pressure, assuring safe,

uninterrupted supply to the domestic sector for cooking and heating /

cooling applications.

Natural Gas Infrastructure consists of (1) R-LNG terminals, (2) Gas

Pipelines and (3) City Gas Distribution (CGD) networks.

Natural Gas can be used as a fuel (power sector, sponge iron,

automotive fuel, domestic cooking etc.) or as a feedstock (fertilizer and

petrochemical industry).

31st October , 2017 I Industry Research Natural Gas: The Fuel of

the Future

Contact:

Madan Sabnavis Chief Economist [email protected] 91-022- 6754 3489

Urvisha H Jagasheth Research Analyst [email protected] 91-22-6754 3492 Guided by: Manek Narang Associate Director- Corporate Ratings [email protected] 91-11- 4533 3233

Mradul Mishra (Media Contact) [email protected] 91-022-6754 3515

Disclaimer: This report is prepared by CARE Ratings Ltd. CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE Ratings has no financial liability whatsoever to the user of this report

mailto:[email protected]

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Industry Research I OIL & GAS SERIES: NATURAL GAS

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Chart 1: Indian Natural Gas Market Structure

Source: CARE Ratings

Production Scenario in India

Exploration is carried forth by NOCs (National Oil Companies); ONGC and Oil India through a nomination regime and private

companies are allowed to enter into exploration through JV with NOCs. This was applicable under the Pre-NELP regime.

Subsequently, 100% foreign participation in exploration was allowed in the New Exploration and Licensing Policy (NELP)

regime. Currently from March 2016, Hydrocarbon Exploration and Licencing Policy (HELP) is being followed which is

monitored by the Directorate General of Hydrocarbon.

Chart 2: Bifurcation of the Indian Natural Gas Production Scenario for FY 2016-17

Source: PPAC

Natural Gas Market Chain

Upstream (Exploration)

Eg: ONGC, Oil India

Midstream (Transporters)

Eg: GAIL, GSPL

Downstream (Distribution)

Eg: IGL, Mahanagar Gas

2%

29%

69%

Coal Based Methane Onshore Production

Offshore Production

79%

21%

ONGC + Oil (NOC) Pvt/JV Companies


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Onshore natural gas fields are located in the states of Andhra Pradesh, Assam/Arunachal Pradesh, Gujarat, Rajasthan, Tamil

Nadu and Tripura. Coal Based Methane fields are located in the above gas field too and in addition are found in the states

of Jharkhand, Madhya Pradesh and West Bengal. Offshore fields include Mumbai High, Gujarat Offshore and Eastern

Offshore. Total production for the FY 2016-17 was dominated by ONGC which produced almost 70% of the domestic

natural gas production, whereas Oil India contributes to only 9% of the production and the balance 21% natural gas is

produced by private companies with joint ventures.

Chart 3: Net Production* of Natural Gas (in terms of BCM)

Source: PPAC

*Net Production denotes natural gas available for consumption, which is derived by deducting from gross production, the quantity of gas flared/loss by

producing companies.

Domestic Production of natural gas has been constantly falling at a CAGR of 6.14% since the last 5 years from the FY 2012-

13 to FY 2016-17 timeline. Net production was 39.8 BCM in FY 2012-13 whereas for FY 2016-17 it has declined to 30.8

BCM. Reason for the decline in production of natural gas over the years is due to the natural decline in production from the

ageing fields of ONGC and OIL India. In addition, there has been lower than expected natural gas production from Krishna

Godavari Basin as well. The drop in production is also due to sand and water flooding. Due to high water and sand ingress,

oil and natural gas fields have to remain shut, which hinders the production.

Table 1: Natural Gas production* scenario in FY 2017-18 (in BCM)

April- August FY 2016-17 April-August FY 2017-18 % Change

Domestic Natural Gas 12.7 13.3 5% Source: PPAC

*The above are net production figures

Domestic production of natural gas seems to have commenced on a positive note for the current financial year as there has

been a 5% increase from the corresponding period last year (FY 2016-17 April-August). Reason for the increase in

production could be attributed to the favourable policies which are adapted to enhance domestic exploration and

39.8

34.6 32.7

31.1 30.8

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2012-13 2013-14 2014-15 2015-16 2016-17

Total Net Domestic Natural Gas Production


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production of oil and natural gas and due to the aim of reducing import dependency by 10% by 2022. India is also on the

move to shift towards a gas—based economy.

Import of Natural Gas

To make up for the deficiency, India imports a significant amount of natural gas in the form of LNG from Qatar, Nigeria,

Equatorial Guinea, UAE, Trinidad and Tobago, Oman, Algeria, Malaysia, Brazil, Norway, Angola, Peru, Egypt and Australia.

Qatar accounts for around 62% of overall LNG imports to India followed by Nigeria supplying 12% of the LNG imports. India

imports 20%-30% of gas through spot markets and the rest through long-term contracts.

Chart 4: Imports of LNG (in terms of BCM)

Source: PPAC

Imports of LNG are increasing at a CAGR of 9.24% from FY 2012-13 onwards. Imports were 17.3 BCM during FY 2012-13 and

now India’s imports for FY 2016-17 have been 24.7BCM.

Petronet LNG Limited is largest importer of LNG in India. Petronet LNG was effective in signing an agreement with RasGas

to revise the sale purchase agreement. According to the revised agreement, Petronet would get LNG at $6-7 per million

British thermal unit (mmBtu). Under the original contract signed between the two companies in 1999, Petronet was getting

LNG at $12-13 per mmBtu. The new contract was implemented from January 1st, 2016 and is valid is till 2028.

The earlier contract with RasGas did not allow any change in pricing, resulting in the buyers paying higher than the

prevailing market price. Under the new contract, the price for the buyer will be governed by market dynamics based on the

global crude oil prices. With the fall in prices of crude oil, which forms the basis for gas pricing, the contracted price of LNG

had become unattractive for Indian customers. The formula initially was linked to LNG prices of the 60-month moving

average of the Japan crude cocktail. Now it has been linked to the three-month average of Brent crude, which is more

favourable in the pricing point of view. Part of the contract also states that India would purchase an additional 1 million

tonnes of LNG every year from RasGas till the purchase contract expires in 2028.The LNG imported by Petronet is sold to

Indian Oil, BPCL, GAIL and Gujarat State Petroleum Corporation.

17.3 17.2 18.5

21.4

24.7

0.0

5.0

10.0

15.0

20.0

25.0

2012-13 2013-14 2014-15 2015-16 2016-17

Total LNG Imports


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Post the LNG supply glut and a collapse of crude prices, with which LNG prices are mostly linked, Petronet also reworked its

deal with ExxonMobil where the deal was renegotiated to acquire more LNG in return for lower prices, reworked.

Currently GAIL is also renegotiating LNG supply deals with Cheniere Energy. With the global fall in LNG prices domestic

companies which supply LNG from companies overseas have been renegotiating their contracts.

Table 2: Total Imports for FY 2017-18 (in BCM)


LNG Imports 10.3 9.9 -4% Source: PPAC

Imports of LNG have dropped in the current financial as compared to the corresponding period in the previous year and on

the other hand production of domestic gas has increased by 5%.

R- LNG

R-LNG is a process of converting liquefied natural gas (LNG) back to natural gas. The process includes liquefaction

of natural gas and its transportation in liquefied form through specialized carriers to the destination, that is the,

RLNG terminal where it is converted back into gaseous state. The gas is converted to liquid form for ease of storage or

transport. It takes up about 1/600th the volume of natural gas in the gaseous state. This makes LNG cost efficient

to transport over long distances where pipelines do not exist.

Table 3: Existing Operational RLNG terminal Capacities

Location Owner Terminal Capacity (in MMTPA)

Dahej PLL 15

Hazira Hazira LNG 5

Kochi PLL 5

Dhabol GAIL 1.3

26.3

MMSCMD 94.6 Source: Ministry of Petroleum and Natural Gas

Note: Though the existing installed capacity of Dabhol is 5 MMPTA, however, due to absence of breakwater facility the available capacity is 1.3MMPTA

Petronet’s Dahej Terminal has a long term LNG sourcing contact with RasGas and with ExxonMobil for the Kochi Terminal.

GAIL (Dhabol) has a 20- year contract with Cheniere Energy. Hazira LNG (A joint venture between Shell Gas BV and Total

Gaz Electricité Holdings France) has sourced cargoes from 17 liquefaction facilities across the globe, ranging from Peru LNG

at the extreme west to Sakhalin LNG in the extreme east. Unlike Dahej, Kochi and Dhabol, Hazira’s business model is

geared more towards short and mid-term contracts instead of long-term contracts.

Development of these projects would depend on techno-commercial feasibility. Rise in LNG consumption is augmenting the

setup of LNG terminals. GSPL LNG which is a joint venture between GSPL and Adani Enterprises is setting up the LNG

terminal in Mundra. Indian Oil Corporation is said to have acquired 50% partnership with GSPL LNG in setting up and

handling the 5MMTPA capacity terminal. IOCL is also setting up the Ennore LNG terminal in the South.


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Table 4: Proposed RLNG Capacities to be set

Location Terminal Capacity (in MMTPA)

Mundra 5

Chhara 5

Jaigarh 4

Dhamra 5

Kakinada 3.5

Ennore 5

27.5

MMSCMD 99 Source: Ministry of Petroleum and Natural Gas

HPCL has an equal joint venture agreement with Shapoorji Pallonji Port Pvt. Ltd to build a 5 MMTPA capacity LNG terminal

at Chhara Port in Gir, Gujarat. Jaigarh LNG terminal is being commissioned by H-Energy. H- Energy has signed a large

contract with a US-based company which wants to bring their own gas through its terminal.

Dhamra in Odisha is being set up by Indian Oil Corp along with Adani Group. Gas imported through this terminal will feed

city gas distribution in seven cities in the region, four fertilizer plants that are being revived and a host of other industries.

LNG will be imported from US and Qatar. Initially Kakinada LNG terminal was being set up by Shell and Engie but they exit

the project over concerns about demand for imported gas in India. Now GAIL is negotiating with Andhra Pradesh

government on the possible structure of the project.

Natural Gas pipelines

Pipelines are used to transport Natural Gas. The Pipeline Infrastructure connects various gas sources to different gas

markets to meet the existing/ future natural gas demand of various Power, Fertilizer, CGD and other industries in the

country. The gas pipeline infrastructure has not only developed the much needed industrialization but has also brought

about socio-economic changes in the major regions from where the gas pipeline passes.

Pipeline transportation of gas offers a safe, economic and environmentally sound alternative to most other modes of

energy transport. In the budget speech of 2014-15, the Government had envisaged to develop an ecosystem of a National

Gas Grid across the country by developing additional 15,000 km to complete the National Gas Grid. (So overall 30,000kms

of gas pipeline as 15,000kms were already in place).

The idea of setting up the National Gas Grid is to remove regional imbalance within the country with regard to access of

natural gas and to provide clean and green fuel throughout the country. A National Gas Grid would also connect gas

sources to major demand centres and ensure availability of gas to consumers in various sectors and to develop the City Gas

Distribution Networks in various cities for supply of CNG and PNG.

National Gas Grid consists of different pipeline sections to be executed by different entities having different completion

schedules. The time schedule varies for these pipelines and is dependent upon grant of clearances by various State

Governments and settlement of court cases.


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Table 5: Existing Gas Pipeline Network as on 31.03.2017

Entity Length (in

kms) Design Capacity

(mmscmd) Average flow

2016-17 % Capacity utilization

2016-17

GAIL Limited 11077 242.1 103.7 42.8

GSPL 2612 43.0 25.3 58.9

Reliance 1480 80.0 17.0 21.3

AGCL , DNPL 817 3.2 2.3 69.4

IOCL 140 9.5 4.3 45.7

ONGC 24 6.0 3.8 63.3 Source: PPAC

At present, the country has a gas pipeline network length of 16,150Km having capacity of 383.8 MMSCMD spread over 15

States & UTs. GAIL is operating Hazira-Vijaipur-Jagdishpur (HVJ) pipeline which was the country’s first cross country

pipeline and DVPL trunk Pipeline to evacuate gas like domestic gas/ joint venture gas from ONGC and R-LNG from PLL.

Overall GAIL has a pipeline network of about 11077 km (about 68.59% market share of current pipelines in operation)

including Dabhol-Bengaluru Pipeline.

Reliance Gas Transportation Infrastructure Ltd is operating 1480 km (about 9.16%) East West Pipeline (EWPL) to evacuate

gas from KG-D6 in Andhra Pradesh. This pipeline passes through Andhra Pradesh, Maharashtra and Gujarat and integrated

with GAIL’s and GSPL’s network to reach Northern and Western Indian market. GSPL is mainly focused in the state of

Gujarat consisting about 2612 km (about 16.17%). In addition GAIL also operates regional gas pipeline networks across

India in Maharashtra, K.G.Basin, Cauvery Basin and South Gujarat.

Table 6: Gas Pipeline under Construction/ Execution as on 31.03.2017

Entity Length (in kms) Design Capacity

(mmscmd) Status of Pipeline laid (Km)

GAIL Limited 6029 122.81 219.32

GSPC India Gasnet Ltd. 2777 119.53 0

GSPC India Transco Ltd. 2042 78.25 0

Indian Oil Corporation Ltd. 1385 84.67 0

H-Energy Pvt. Ltd. 635 17 0 A P Gas Distribution Corporation 391 90 0

Reliance Gas Pipelines Ltd. 312 3.5 304 Gas Transmission India Pvt. Ltd. 250 36 0

Source: PPAC

Recently on 29th September, 2017 PNGRB floated a consultation paper regarding “Unified Tariff Proposal”. Under the

“Unified or pooling” method the pipeline tariff will be computed by pooling capital expenditure and operating expenses of

all cross- country pipelines of a company and apportioning them over the cumulative volumes in such a way that allows

12% post tax return or 18% pre-tax return.

This augurs well for gas transmission companies as it will result in an increase in their earnings. According to the present

structure, tariff is based on the amount approved by PNGRB which is based on several factors such as capex, operating

expenses and capacity utilisation. So the old pipelines with higher capacity carry lower tariffs compared to with new


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pipelines built at greater costs. The new policy is upshots in the tariff being higher (Rs57/mmBtu) than the current

weighted average (Rs37mmbtu).

City Gas Distribution

City Gas Distribution (CGD) is an important integral part of any city. CGDs are networks and pipelines for carrying natural

gas and petroleum. Setting of CGD network is authorised by the Petroleum and Natural Gas Regulatory Board (PNGRB)

under the Petroleum and Natural Gas Regulatory Board (PNGRB) Act. The CGD system supplies gas to various consumers

like industrial, domestic, commercial and transportation. Gas supplied to industrial, domestic and commercial customers is

known as Piped Natural Gas (PNG), whereas gas dispensed through CNG refuelling stations to CNG vehicles (transportation)

is known as Compressed Natural Gas (CNG).

Table 7: CNG Stations as on 31.03.2017

State No. of CNG Stations

Delhi / NCR 421

Gujarat 396

Maharashtra 245

Uttar Pradesh 54 Andhra Pradesh / Telangana 42

Haryana 31

Madhya Pradesh 24

West Bengal 7

Tripura 5

Rajasthan 3

Karnataka 3

Chandigarh 2

All India 1233 Source: PPAC

Table 8: CNG Sales trend in India (Sales in TMT)

FY 2014-15 FY 2015-16 FY 2016-17

Overall CNG Sales 2037.24 2155.44 2365.5

Y-O-Y Change - 6% 10% Source: PPAC

Overall the sales volume of CNG has been increasing on a y-o-y basis. The growth in sales is due to the increase in sales in

the states of Gujarat, Uttar Pradesh, Haryana and West Bengal.

PNG is supplied to residential, commercial and industrial users through extensive network of pipelines. Gas sales to

commercial and industrial users are achieved through long-term gas sales agreement, whereas residential users are

charged on usage basis. Supplying PNG to industrial users can further be categorized into large-scale industries and

small/medium-scale industries.


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Table 9: Number of Piped Natural Gas connection data

State Domestic connection Commercial connection Industrial connection

Delhi / NCR 742205 1903 962

Maharashtra 999868 3387 191

Gujarat 1653663 14766 4200

Uttar Pradesh 51195 272 500

Tripura 28669 366 50

Madhya Pradesh 13888 63 99

Rajasthan 157 1 16

Assam 30023 1002 400 Andhra Pradesh/Telangana 6608 46 5

Haryana 54414 166 241

Karnataka 2446 17 3

Chandigarh 2350 0 0

Kerala 102 2 0

Dadra & Nagar Haveli 58 5 3

Total 3585646 21996 6670 Source: PPAC

Domestic connections pertain to residential households. They use gas primarily for domestic cooking or heating purpose.

The piped gas is increasingly being seen as an attractive alternative to the domestic LPG cylinders.

Commercial connections are supplied to customers who are proprietors or partnership entities that utilize PNG exclusively

for commercial purposes. These set of customers comprises of hotels, restaurants, dairies, educational institutes etc.

Industrial customers are large-volume customers from the industrial sector. This set of customers comprises of textile,

pharmaceuticals, glass, chemicals, pulp and paper etc. They constitute a major portion of the total gas sales. They utilize

gas for a variety of purposes such as heating, cooling, power production and as a process feedstock.

Demand/ Consumption of Natural Gas

Natural Gas is a new age fuel. With only one carbon and four hydrogen atoms per molecule, Natural Gas has the lowest

carbon to hydrogen ratio, hence it burns completely, making it the cleanest of fossil fuels. It is used for both energy and

non-energy purposes.

• As energy natural gas is used in the power sector, sponge iron industry, tea plantation etc. It is more energy-efficient

compared to coal.

• For non-energy use it is used as feedstock in fertilizer and petrochemical industry.

• In compressed form, natural gas can also be used as an automobile fuel (CNG). CNG is made by compressing purified

natural gas and is typically stored and distributed in hard containers. With CNG, the gas volume is reduced by 200 times.

• Domestic use: Natural gas in the form of LPG (Propane) is widely used for cooking, drying and heating purpose.


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Domestic gas produced from fields awarded under different regimes such as Nomination, Pre- New Exploration Licensing

Policy (NELP) and NELP are allocated as per the Gas Utilization Policy (“GUP”). As per the policy, domestic gas is allocated

sector-wise in the order of priority as decided by the government. The demand for natural gas is mainly driven by the

Fertilizer and Power Sector, which get priority over the other sectors when it comes to consumption of natural gas. In 2014,

it was also mandated that CGD entities were to meet 100% requirement from natural gas and this was to be implemented

by cutting down the allocation towards the non-priority sectors on a pro rata basis.

Chart 5: Sector- Wise Consumption Pattern (FY 2016-17) Chart 6: Total Consumption Natural Gas (in terms of BCM)

Source: Ministry of Petroleum and Natural Gas Source: PPAC

Others* includes Refinery, Petrochemicals, LPG, IC and Manufacturing etc.

Consumption of Natural gas was on a decline since FY 2012-13 till FY 2014-15, where it was the lowest as the price of

natural gas was at its peak. FY 2014-15 was when prices of crude oil had fallen sharply due to the production of US shale

gas. Post the new Government elections in 2014, the importance of natural gas has been gaining, as a preferred fuel

because of its cleaner and greener properties and ever since then it has been growing at a CAGR of 4.7% till FY2016-17 i.e.

in the past 3 years.

India is also a part of the Paris climate accord and is one the countries which is on track of adhering to the clean energy

revolution norms and is making significant accomplishments in achieving its targets of the accord. India is currently in a

strong position not only to meet, but exceed its Paris climate targets. Consumption of natural gas is on the reasons for such

an achievement.

Table 10: Total Consumption of Natural Gas for FY 2017-18 (April-August)


Total Consumption 20.6 23.2 13% Source: PPAC

Consumption of natural gas has increased in FY 2017-18 as compared to its consumption in the corresponding period in the

previous year. Growth in the power and CGD sector is also responsible for augmenting the rise of consumption of natural

30.40%

22.90% 14.50%

1.70%

30.50%

Fertilizer Power

City Gas Sponge Iron + Steel

Others*

51.7 46.2 45.3 46.7

49.7

0.0

10.0

20.0

30.0

40.0

50.0

2012-13 2013-14 2014-15 2015-16 2016-17

Total Consumption of Natural Gas


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gas. Construction of pipelines throughout the country which aids in the supply of gas is also responsible in boosting the

consumption levels.

Policies undertaken by the Government to enhance Exploration and Production

New Domestic Natural Gas Pricing, 2014: In October 2014, the Government of India notified New Domestic Natural Gas

Pricing Guidelines, 2014. Under this policy, it tweaked the Rangarajan formula and came up with its own formula

benchmarking several global natural gas hubs. The pricing regime is applicable to all natural gas produced domestically,

irrespective of the source, whether conventional, shale or coal-bed methane (CBM) produced in the public sector or by the

private sector firms.

The following are the exceptions to which this policy would not apply:-

(a) Small and isolated fields in nomination blocks, given their peculiar conditions, guidelines for pricing of gas were issued

in 2013 would continue to apply.

(b) Where prices have been fixed contractually for a certain period of time, till the end of such period.

(c) Where the PSC provides a specific formula for natural gas price indexation/fixation.

(d) Such Pre-NELP blocks where Government approval has not been provided under the Production Sharing Contract (PSC).

As per the mechanism approved in October 2014, the price of domestically produced natural gas is to be revised every six

months -- April 1 and October 1 -- using weighted average or rates prevalent in gas-surplus economies at Henry Hub of US,

National Balancing Point of the UK, rates in Alberta (Canada) and Russia with a lag of one quarter. The price so notified

would be applied prospectively with effect from 1st November, 2014 and would be on GCV basis as input prices in the

formula are on GCV basis.

The gas price is proposed to be determined as per the formula given below;

P = VHH PHH + VAC PAC + VNBP PNBP + VR PR

VHH + VAC + VNBP + VR

Where

(a) VHH = Total annual volume of natural gas consumed in USA & Mexico.

(b) VAC = Total annual volume of natural gas consumed in Canada.

(c) VNBP = Total annual volume of natural gas consumed in EU and FSU, excluding Russia.

(d) VR = Total annual volume of natural gas consumed in Russia.

(e)PHH and PNBP are the annual average of daily prices at Henry Hub (HH) and National Balancing Point (NBP) less the

transportation and treatment charges.

(f) PAC and PR are the annual average of monthly prices at Alberta Hub and Russia respectively less the transportation and

treatment charges.


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Table 11: Domestic Natural Gas Prices (GCV Basis)

Domestic Natural Gas Price (GCV Basis) % change (+/-)

1st Nov’14 – 31st Mar’15 5.05 1st Apr’15 – 30th Sep’15 4.66 -7.7%

1st Oct’15 – 31st Mar’16 3.82 -18.0%

1st Apr’16 – 30th Sep’16 3.06 -19.9%

1st Oct’16 – 31st Mar’17 2.5 -18.3%

1st Apr’17 – 30th Sep’17 2.48 -0.8%

1st Oct’17 – 31st Mar’18 2.89 16.5% Source: PPAC

So, the rates for April 1, 2017 to September 30, 2017 period will be based on average price at the international hubs during

January 1, 2016 to December 31, 2016. Sources said prices in the reference markets for 2016 are known and so the rates in

first half of fiscal year beginning April 1 can be calculated.

The Government also implemented the decision to allow marketing and pricing freedom for gas produced from

High Pressure High Temperature, Deepwater and Ultra Deepwater areas, with a ceiling price arrived at on the basis of

landed price of alternative fuels with a view to incentivize monetization of domestic gas resources in difficult areas.

This means the producers have a maximum amount/ ceiling price which they can charge for the gas produced from difficult

fields. The policy guidelines would be applicable to future discoveries as well as existing discoveries which are yet

to commence commercial production as on 1.1.2016.

The sources from which data was obtained and the assumptions considered for the purpose of calculation/determination

of gas price ceiling for the gas produced from discoveries in Deep- water, Ultra- Deepwater and High pressure-High

Temperature are:

1. Landed price of fuel oil

2. Weighted average import landed price of substitute fuels: (I) Coal (II) Fuel oil (III) Naphtha

3. Landed price of imported LNG

Table 12: Ceiling Prices for Gas from HP-HT/Deep/Ultra Deepwater (GCV Basis)

Ceiling Prices for Gas from HP-HT/Deep/Ultradeepwater (GCV Basis) % change (+/-)

1st Apr’16 – 30th Sep’16 $6.61/mmBtu 1st Oct’16 – 31st Mar’17 $5.30/mmBtu -19.8%

1st Apr’17 – 30th Sep’17 $5.56/mmBtu 4.9%

1st Oct’17 – 31st Mar’18 $6.30/mmBtu 13.3% Source: PPAC

New Exploration Licensing Policy (NELP): New Exploration Licensing Policy (NELP) was a policy adopted by Government of

India in 1997 indicating the new contractual and fiscal model for award of hydrocarbon acreages towards exploration and

production (E&P). NELP was applicable for all contracts entered into by the Government between 1997 and 2016.


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The main objective was to attract significant risk capital from Indian and Foreign companies, state of art technologies, new

geological concepts and best management practices to explore Oil and Gas resources in the country. Since then licenses for

exploration are being awarded only through a competitive bidding system and National Oil Companies (NOCs) are required

to compete on an equal footing with Indian and Foreign companies to secure Petroleum Exploration Licenses (PELs).

The Government has taken number of measures to bring in healthy competition and public participation by the way of

NELP for exploration & production of Oil & gas in the country. NELP regime was able to accelerate the quest for

hydrocarbon exploration, and also bring in state of the art technology and efficiency of operations /management to the

country.

Hydrocarbon Exploration and Licensing Policy (HELP): The government has increased its impetus on growing the domestic

production. The government has introduced a new Hydrocarbon Exploration and Licensing Policy (HELP) and a new fiscal

model based on Revenue Sharing Contract. This is an upgraded version as compared to the previous New Exploration

Licensing Policy (NELP) and Production Sharing Contract (PSC). It also addresses various industry concerns that contributed

to a slowdown in upstream oil and gas investment over the last few years.

In March 2016, Hydrocarbon Exploration and Licensing Policy (HELP) replaced New Exploration Licensing Policy (NELP).

Four main facets of this policy are, (1) Uniform license for exploration and production of all forms of hydrocarbon, (2) an

open acreage policy, (3) Easy to administer revenue sharing model and (4) Marketing and pricing freedom for the crude oil

and natural gas produced.

HELP was devised to ensure higher domestic oil & gas production, to attract substantial investment in the sector and

generate sizable employment. The policy is also aimed at enhancing transparency and reducing administrative discretion.

The uniform licence will enable the contractor to explore conventional as well as unconventional oil and gas resources

including CBM, shale gas/oil, tight gas and gas hydrates under a single license. The concept of Open Acreage Policy will

enable E&P companies choose the blocks from the designated area.

The earlier contracts were based on the concept of profit sharing where profits are shared between Government and the

contractor after recovery of cost. Under the profit sharing methodology, it became necessary for the Government to

scrutinize cost details of private participants and this led to many delays and disputes. Under the new regime, the

Government will not be concerned with the cost incurred and will receive a share of the gross revenue from the sale of oil,

gas etc giving rise to a new fiscal model based on Revenue Sharing Contract

Recognising the higher risks and costs involved in exploration and production from offshore areas, lower royalty rates for

such areas have been provided as compared to NELP royalty rates to encourage exploration and production. A graded

system of royalty rates have been introduced, in which royalty rates decreases from shallow water to deepwater and ultra-

deep water. At the same time, royalty rate for onland areas have been kept intact so that revenues to the state

governments are not affected. On the lines of NELP, cess and import duty will not be applicable on blocks awarded under

the new policy. This policy also provides for marketing freedom for crude oil and natural gas produced from these blocks.

Open Acreage Licensing Policy (OALP): OALP was introduced vide a Cabinet decision of the Government dated 10.03.2016,

as part HELP or Hydrocarbon Exploration and Licensing Policy. OALP gives an option to a company looking for exploring

hydrocarbons to select the exploration blocks on its own, without waiting for the formal bid round from the Government.

Under Open Acreage Licensing Policy (OALP), a bidder intending to explore hydrocarbons like oil and gas, coal bed

methane, gas hydrate etc., may apply to the Government seeking exploration of any new block (not already covered by

exploration). The Government will examine the Expression of Interest and justification.


14

Discovered Small Fields Bid Round-2016: In line with Prime Minister’s , Vision for reduction of the India’s oil imports by

10% by 2022, Ministry of Petroleum of Natural Gas announced Discovered Small Field (DSF) Bid Round 2016 on 25th

May 2016, offering 46 contract areas across 9 sedimentary basins, with 67 oil and gas fields, estimated to hold over 625

Million Barrels of Oil and Oil Equivalent Gas (O+OEG) in-place, spread over 1,500 square kilometres in Onland, Shallow

water and Deepwater areas.

The Discovered Small Field policy provides for single uniform license for producing all kinds of hydrocarbon, no cess on the

oil production, moderate royalty structure, customs duty exemptions and complete marketing and pricing freedom for the

sale of produced crude oil and natural gas. These small fields have been discovered by National Oil Companies i.e. Oil &

Natural Gas Corporation Ltd (ONGC) and Oil India Ltd (OIL) and are envisaged to be put on production through expeditious

efforts.

Pricing of Natural Gas

Chart 7: Prices of Natural Gas of Major Hubs v/s Price of Crude Oil

Source: EIA, IMF, Alberta Energy, CMIE, ofgem

Prices of Natural Gas are directly related with market demand and supply factors. An increase in supply results in lower

prices, and decreases in supply tend to increase prices. Factors which have a bearing on supply of natural gas depend on;

Amount of natural gas production, level of natural gas in storage and volumes of natural gas imports and export. Factors

which affect the demand side factors of natural gas prices are; Variations in winter and summer weather, level of economic

growth and availability and prices of competing fuels. Higher demand tends to lead to higher prices, while lower demand

tends to lead to lower prices.

Prices of natural gas tend to rise in the winter months as the demand for heating of homes increases which puts an upward

pressure on the prices. Hurricanes and other severe weather conditions can affect the supply of natural gas which has an

impeding effect on the prices.

0

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Henry Hub( $/mmBtu) Alberta Gas (CAD/GJ)

Russian Natural Gas ($/mmBtu) New Balancing Point-UK (p/therm)

Brent Crude Oil ($/bbl)


15

Natural Gas prices saw a sharp rise in prices through 2016 across regions. US Henry Hub price registered a 57%

increase from $2.28/MMBtu in January 2016 to $3.59/MMBtu in December 2016. This increase was accounted for

rise in domestic consumption.

Prices of natural gas are highly correlated to the prices of crude oil. OPEC is the main influencer of fluctuations in oil prices.

OPEC controls 40% of the world's supply of oil. The consortium sets production levels to meet global demand and has

influenced the price of oil and gas by increasing or decreasing production. In 2014, the prices of crude oil fell sharply as

OPEC was not cutting down on supply of oil which led to an oversupply of crude oil and at the same time shale revolution

was at its peak in the USA. This also led to the fall of natural gas prices worldwide.

Chart 8: Prices of Natural Gas of Major Hubs vis-à-vis Price of Domestic Natural Gas

Source: EIA, IMF, Alberta Energy, CMIE, ofgem, PPAC

The domestic natural gas price is determined by the formula which has been decided according to the New Domestic Gas

price formula, which considers the prices of natural gas in USA (Henry Hub), UK (New Balancing Point), Canada (Alberta

Gas) and Russia (Russian Natural Gas).

The volume of total consumption of natural gas in the North American region (USA, Canada and Mexico), European Union,

Former Soviet Union and Russia is also considered while deciding the price of domestic natural gas which prevails for the 6

month period. Prices are revised on a bi-yearly basis. By considering also the consumption of natural gas of the region with

prices, there is an avoidance of inflating the price for the following period.

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Domestic Natural Gas Price Henry Hub( $/mmBtu)

Alberta Gas (CAD/GJ) Russian Natural Gas ($/mmBtu)

New Balancing Point-UK (p/therm)


16

Chart 9: Prices of Domestic Natural Gas ($/mmBtu)

Source: PPAC

Ever since the prices of natural gas were to be determined according to the New Domestic Gas Policy, the prices which

have been decided have been falling as the global benchmark prices of natural gas have been falling, until recently when

there has been a rise of natural gas prices vis-a –vis there has also been a rise of global crude oil prices with Brent touching

the $59/bbl mark. This rise in price is mainly due to the political unrest in the OPEC regions and with the threat of Turkey

to cut down on the exports of Kurdish oil. OPEC and others oil producers have cut production of crude oil by 1.8 million

barrels per day, but U.S. shale producers have not cut down on production which is keeping the crude oil prices by not

rising phenomenally. The cut in production of crude oil has caused the prices of oil to increase which in turn has raised the

prices of natural gas worldwide which in turn has caused the domestic prices to rise.

With a 16.5% jump in domestic natural gas prices the end users of natural gas the like fertilizer companies, power

companies and CGD entities will feel a rise in their input costs.

Financial Performance of Natural Gas Companies

To observe the financial performance of the Natural Gas industry we have considered the segment performance relating to

the natural gas activities. Furthermore we have segregated the financials into 3 parts:

(1) Upstream segment relates to Exploration and Production of natural gas.

(2) Midstream activities which relates transportation of gas through gas pipelines and RLNG sourcing and

transportation companies.

(3) Downstream segment purviews over the CGD sector activities.

Upstream Segment

Companies considered for analysing the upstream exploration and production of natural gas are ONGC Limited, Oil India

Limited and Reliance Industries Limited.

5.05

4.66

3.82

3.06

2.5 2.48

2.89

2

2.5

3

3.5

4

4.5

5

5.5

Nov' 14 April' 15 Oct' 15 April' 16 Oct' 16 April' 17 Oct' 17

Domestic Natural Gas Price


17

Chart 10: Sales Growth Rate Chart 11: Operating Profit Margin (in %)

Source: BSE India

Note: Sales Growth rate includes sales numbers of ONGC. Oil India and RIL, whereas for OPM ONGC is not included as ONGC operating profit margins

for the segment are not available in the public domain.

During FY 2013-14 natural gas prices were at its peak and it was the gas price determined by the Rangarajan committee

which had accounted for the increase of domestic natural gas which in turn has contributed for the slight increase in sales

growth. The key reasons for the decline in sales growth from FY 2014-15 onwards is on the account for low domestic gas

prices. Low domestic gas prices have led to lower realizations in the natural gas exploration segment as well. The constant

decline of domestic gas production is also accrediting to the low sales growth and realisations.

Exploration of natural gas has become a costly affair for the companies as the gas prices are low which has affected the,

operating profit margin levels to such an extend that in FY 2012-13 the margins were 36.6%, and now margins have

contracted with every passing year so to so it now stands at the level of 7.1% in FY 2016-17. Even with the incentive of

giving marketing freedom for the exploration of gas produced from High Pressure High Temperature, Deepwater and

Ultra Deepwater areas, the policy has not aided in the overall industry’s operating profit margins and sales growth.

Midstream Segment

Companies we have analysed under the midstream segment are GAIL Limited, GSPL Limited and Petronet LNG Limited.

Chart 12: Sales Growth Rate Chart 13: Operating Profit Margin (%)

Source: BSE India

-27.0%

-22.0%

-17.0%

-12.0%

-7.0%

-2.0%FY 2012-

13FY 2013-

14FY 2014-

15FY 2015-

16FY 2016-

17

Upstream/ Gas Exploration Sales Growth %

36.6 30.7 30.3

19.1

7.1

0.0

10.0

20.0

30.0

40.0

FY 2012-13 FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17

Upstream/ Gas Exploration OPM

-25.0%

-5.0%

15.0%

FY 2012-13

FY 2013-14

FY 2014-15

FY 2015-16

FY 2016-17

Midstream Sales Growth %

8.0

6.0

4.2

7.2

10.6

3.0

5.0

7.0

9.0

11.0

FY 2012-13

FY 2013-14

FY 2014-15

FY 2015-16

FY 2016-17

Midstream OPM


18

The midstream sector of natural gas faced a considerable downturn in sales growth due to low availability of domestic gas,

coupled with low domestic gas prices. Dwindling gas production from domestic gas fields along with lack of

commercialization of new gas discoveries, had led to issues of gas allocation and deficit in supplies. This issue was later

resolved by allocation of imported LNG in the form of RLNG to the end-use sectors. FY 2015-16 has seen a revival in the

sales growth rate.

The Operating Profit Margins of Midstream companies have improved considerably and the margins have been on a rise

from FY 2014-15 onwards. The key reason attributing to this rise is due to robust gas pipeline construction, which is

facilitating to the formation of the national gas grid. Consumption of LNG has also been increasing which has led to the rise

of LNG imports which in turn is trying to facilitate the construction of RLNG infrastructure. With the introduction “Unified

or pooling” method the pipeline tariff, companies in the midstream sector dealing with the transportation of gas will see a

further fillip in their financials.

Downstream Segment

Companies taken into consideration for the financials of the downstream segment of natural gas are Indraprastha Gas

Limited, Mahanagar Gas Limited and Gujarat Gas Limited.

Chart 14: Sales Growth Rate Chart 15: Operating Profit Margin (%)

Source: BSE India

Operating profit margins of the downstream sector is increasing on a y-o-y basis as the CGD landscape is changing. More

number of CNG stations is being set up and households are switching from LPG to PNG connections. CGD companies are

also setting up CNG stations at retail outlets of OMCs (Oil Marketing Companies). Natural Gas being a cleaner, greener fuel

is being preferred over the traditional energy fuels. From FY 2014-15 onwards, CGD segment was accorded highest priority

for gas allocation in order to promote the CGD sector. This means the CGD sector can avail 100% low cost domestic natural

gas. This decision has brought down the price of CNG (Transport) and PNG (domestic) across the nation and has led to the

increase in the consumption of natural gas. Low domestic gas prices has also aided in increasing the margins of the sector.

Due to low domestic gas prices and CGD sector being awarded the priority sector under gas utilization, the reduction in the

selling price of Compressed Natural Gas (CNG) and Piped Natural Gas (PNG)-domestic, has resulted in a lower input cost of

gas which was passed on to the customers by reducing the selling price of CNG and PNG- domestic. Further, with the

-25.0%

-20.0%

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

FY 2014-15 FY 2015-16 FY 2016-17

Downsteam/CGD Sales Growth %

14.2

17.0 17.5

21.2

13.0

14.0

15.0

16.0

17.0

18.0

19.0

20.0

21.0

22.0

FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17

Downsteam/CGD OPM


19

reduction in the price of crude oil (due to the supply glut by OPEC and Shale production in US), the alternate fuel prices

decreased considerably during the year and to compete with the falling price of alternate fuel, the selling price of gas to

industrial and commercial customers was reduced by providing discount.

Even though the volumes of sales had increased a low selling price has resulted in a decline in sales growth rate for the

year FY 2015-16.

Outlook/Conclusions

Indian economy is growing at a healthy growth rate of 7%, for the current financial year of 2017-18. With infrastructure

and industry projects on a rise, energy is a primary requirement for any economy to function and grow. India’s energy

demand is expected to rise as the economy expands and more people have access to power, cooking gas and personal

transport. Currently India is the 3rd largest energy consumer after China and USA.

Natural Gas is emerging to be the gas of the future due to its clean burning properties and because is impact on the

environment is not harmful.

India plans to increase its gas usage in the energy mix to 15% from the current 6.5%. The world average of gas use in the

total energy consumption is 24%.

Domestic natural gas production till FY2016-17 was on a decline due to less than expected output from the KG- basin and

due to ageing wells. But in the current financial year, the output till the April-August period has been higher by 5% as

compared to the corresponding cumulative period in the previous financial year, FY 2016-17.

Care Ratings estimates the production of domestic natural gas to rise in the coming few years, reaching a level of

36 BCM in the financial year 2020.

The Government is working towards India to become a natural gas based economy and is working to elevate the domestic

production of the fuel.

Rise in production would be supported with the amount of investments the Exploration and Production segment has

captured. As per the Ministry of Oil and Gas, in the next 10 years there will be a scope for $300 billion worth of

Hydrocarbons projects in India.

Reliance Industries Ltd (RIL), along with its partner BP plc, has decided to invest US$ 6 billion for the development of

new R-series gas fields in the KG-D6 block.

Oil and Natural Gas Corporation (ONGC) plans to invest US$ 11 billion in exploration and development of blocks in

the Krishna Godavari (KG)basin, which is expected to increase gas production by around 30 per cent over the next

three-four years.

Larsen & Toubro's (L&T) subsidiary, L&T Hydrocarbon Engineering has bagged an order relating to Oil and Natural

Gas Corporation's (ONGC) Neelam Re-Development and B173AC projects worth Rs 1,656 crore (US$ 257 million)

which involves building four new platforms, a 32 kilometre pipeline and modification work on existing platforms in

the India's western off shore basin, Neelam Field. The project is expected to be completed by 2019 and would result

in incremental gain of 2.76 million ton crude oil and 4.786 BCM gas until 2034-35.

ONGC has signed an agreement with the Government of Andhra Pradesh to invest around Rs 78,000 crore (US$ 11.7

billion) in the Krishna Godavari basin for producing hydrocarbons by FY 2021-22.


20

Government of India plans to make huge investment for the development of domestic gas fields in India in the next

5-7 years.

US Trade and Development Agency (USTDA) has awarded a grant to Prabha Energy Private Limited (PEPL) a private

company to specialise in exploration and production of CBM. PEPL has also selected Advanced Resources

International (A US firm) to carry out a feasibility study for CBM production enhancement. This would benefit in

increasing the prospects and production levels under CBM basins.

ONGC has also made hydrocarbon discoveries to the west of its Mumbai High offshore discoveries which is located 10kms

west of its Mumbai High basin and has found the first hydrocarbon proof in Kutch of about 29.87mt of reserves.

Natural Gas satisfies most of the requirements for fuel in a modern day industrial society, being efficient, non-polluting and

relatively economical. The periodic uncertainties and volatility in both the price and supply of oil have also helped Natural

Gas emerge as a major fuel in the energy basket across countries.

Care Ratings predicts the demand of Natural Gas to reach the levels of 57.4BCM- 57.6BCM by 2020, at a CAGR of 5.1%.

The demand of natural gas in India is likely to depict a strong growth with major demand from Power and Fertilizer

sectors. City Gas Distribution (CGD) sector is expected to grow faster and its share in gas consumption would

continuously increase over time.

The Government along with cash rich PSUs in coal and oil sector are jointly investing over Rs. 50,000 crores to revive

closed fertilizer plants and setting up gas pipelines which would make India self-sufficient in Urea manufacturing.

Natural Gas is used as a feedstock for urea manufacturing. There are 30 urea manufacturing plants out of which 27

run on natural gas and according to the second phase of “Gas Pooling Policy” the remaining 3 plants will also be

converted to gas based plants.

Gas based Power units to witness a steady growth on the backing of Government initiatives for Cleaner Energy and

Higher power demand due to power for all scheme.

It is speculated that India’s rapid expansion of Solar and Wind energy will also require use of natural gas for power

generation which will ensure a smooth 24hour supply.

CGD sector to witness growth as reallocation of domestic gas would also have a positive impact on CGD operations

in different cities. Developing green corridor by setting up of CNG stations on National Highways/State Highways

will push the setting of CNG stations.

Care Ratings estimates the imports of natural gas in the form of LNG to continue to grow at the steady level i.e. to the

extent of plugging in the structural gap between gas demand and domestic production.

The current regasification facilities are all located on the west coast of the country. With the proposed new plants

which will be set up, on the east coast of India as well the disparity between the supply of LNG to its end users in

all parts of the country will be diminished.

Pipeline infrastructure expansion in East, North-East and Southern regions is in synchronization with market

development expanding the development of the national gas grid.

India has also signed a host of MoUs and a MoCs with Japan for setting up a flexible LNG market. The MoC to

provide a framework to cooperate in facilitating flexibility in LNG contracts, abolition of destination clause and

exploring possibilities of cooperation in establishing reliable spot price indices reflecting true LNG demand supply.

This opportunity for technical and knowledge base sharing with Japan in LNG.


21

India is to set up a Natural Gas Trading platform which would lead to market determined pricing of gas. This will be much

similar to the global hubs such as Henry Hub of the US and New Balancing Point of the UK.

Both LNG and domestically produced natural gas will be traded at the hub. This will enable market determination of

the Indian price of Natural Gas.

All new production will have marketing freedom. This move is to encourage more investments towards the

exploration of natural gas.

Pricing freedom is one of the biggest triggers for investor interest which could probe foreign countries to partner

with technology companies within India and outside to bring in expertise in the sector.

Care Ratings believes more investment towards the Natural Gas industry will help develop more infrastructure

which will benefit the end users and help India move towards a ”Gas Based Economy”. For India to be a Gas

Based economy, domestic Gas production needs to be enhanced, Regasification of LNG should be erected with

pipelines connecting to the end users.


22

Annexures

Pricing of natural gas prior to the New Domestic Gas Policy: India had a two pricing regimes viz. APM (Administrative Price

Mechanism) and non-APM (aka. free market gas). The APM gas price is declared by Petroleum Planning and Analysis Cell

(PPAC). The non-APM/free market gas is of two types viz. domestically produced gas from JV (Joint Venture) fields and

imported gas.

Earlier, the JV gas pricing was done on the basis of a Production Sharing Contract, while for imported gas the pricing was

done under Special Purchase Agreement. This is before C. Rangarajan committee report.

The issues were created when APM gas supplies went down as compared to non-APM gas. This created a wide gap

between the two which was causing issues. Since APM gas was primarily given to the power producers and fertilizers

producers; their demand was to be met from non-APM gas which was costlier. The Ministry of chemicals and fertilizers /

Ministry of Power resisted price rise while ministry of petroleum pushed for rise in prices. The tussle continued till recent

times.

Amid this chaos, the UPA Government established the C Rangarajan committee to decide upon a rational formula of the

gas price. This committee devised a formula on the basis of three major global benchmarks and increased the prices to $8.4

per MMBtu, double of what was fixed in Production Sharing Contract. The Rangarajan committee formula was considering:

(1) Price of imported liquefied natural gas (LNG) and (2) Weighted average price of gas in Global markets (US, UK and

Japan) and average of values (1) and (2). That was the price of the final price of the country. Even after the implementation

of the Rangarajan committee formula, the prices of natural gas had doubled to $7-$8/ MMBtu than the existing price under

the PSC.

Once Modi government was in power, the Rangarajan committee gas determined formula was scrapped and a new policy,

the New Domestic Natural Gas Pricing was established in October 2014.

The new formula recommended an approach for gas price determination, which is based on the modification to the

Rangarajan formula by:

(i) Removal of both the Japanese and Indian LNG import components in the formula.

(ii) Consideration of Alberta Gas Reference price in place of Henry Hub Prices for Canadian consumption.

(iii) Consideration of Russian actual price in place of National Balancing Point price for the Russian consumption considered

under Former Soviet Union (FSU) countries.

(iv) Consideration of appropriate deductions on account of transportation and treatment charges, etc., for different hub

prices.

(v) The options of bi-annual and annual price revision instead of quarterly revision may be considered.

Paris Climate Accord: The Paris Climate agreement is a collective agreement made by 195 countries, in December 2015, in

lieu to slow the process of global warming by making efforts to hold the increase in the global average temperature to well

below 2 degrees above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C above pre-

industrial levels. This basically means that the countries would try to limit the increase in global temperature rise.

Another crucial point in this agreement was the decision to limit the amount of greenhouse gases emitted by human

activity to a level that can be naturally absorbed by trees, soils and oceans. Nations have pledged “to achieve a balance

between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century


23

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31st October , 2017 I Industry Research Natural Gas: The Fuel of … Gas Report.pdf · Industry Research I OIL & GAS SERIES: NATURAL GAS 4 production of oil and natural gas and due