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Gas is moving closer to being a global industry. The geographical dislocation of
reserves to market is being partly mitigated by new cost-effective ways of linking
stranded fields and customers. Progress on integrating supply and demand is likely
to accelerate and, as economies of scale increase and new alliances are formed,
regional markets will continue to develop and coalesce. At the same time,
liberalization of markets is heralding new choice for customers, more

Dynamic, liquid gas trading conditions for gas companies, a changing balance of
risk and reward for all players. The vision for a world shifting to gas is not
constrained by the physical abundance of gas.

The world¶s known (³proved´) gas reserves are sufficient for nearly 70 years of
Production at today¶s levels; the total base of conventional gas resources is
estimated to be at least twice as large. Like oil, however, the richest gas deposits
are far from the areas where demand for gas is expected to rise most rapidly. About
three-quarters of the world¶s proven gas reserves are located in the former Soviet
Union and the Middle East.

The integration of gas markets is the byproduct of a steady and cumulative

improvement in technologies for long-distance transportation of gas²pipelines
and liquefied natural gas (LNG). Regional and local gas trading networks are based
on pipeline interconnections, and very long distance transportation is increasingly
the province of LNG. International trade in LNG has been occurring for over 40
years and involves shipments from close to a dozen countries. In the 1990s,
roughly 5% of world natural gas consumption moved as LNG, but this is expected
to rise with higher demand for imported gas, particularly in North America, as
locally available sources become depleted. Indeed, construction of transportation
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infrastructure is currently the major barrier to increased world natural gas
consumption. These results are supported by previous studies cited in s as the
International Energy Agency¶s r
 
 
  , which suggests that
cumulative investment needs in the global natural gas supply chain between 2001
and 2030 will total $3.1 trillion, or $105 billion per year.

India is the growing market for energy requirements and much of the gas which we
consumed is imported by us. The market is growing and there are many challenges
which the energy dependent country faces and India is also in that stage. The Gas
markets are not much free as it is other countries Now also the prices of gas is not
dependent on market demand and supply but on the policies made by government
and the companies. The demand is rising and supply is constant with the limited
contracts in hands with some companies .It is the time when we have to focus our
self for market dependent parameters so as sustain the supply of our energy needs.

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(1) World Oil reserves are expected to last for 40 years, whereas; natural gas
reserves are estimated to last for another 60 years.

(2) Stranded natural gas reserves are more than the proved reserves in the case
of natural gas, which implies that there is still huge amount of untapped potential
in the case of this fossil fuel.

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(3) In terms of pricing natural gas historically has been cheaper than oil and in
the future also it will continue to be cheaper than oil but will have to linked to oil
as a % or as a formula.

(4) Natural gas has minimal carbon di oxide emissions and therefore it is more
environment friendly than the other fossil fuels. With the Kyoto Pact (February 16,
2005) and the recent predictions of catastrophic changes in climatic conditions like
heatwaves, melting icecaps etc. environmental concerns would increase ,implying
a greater use of natural gas and this would create a scenario where more and more
new natural gas fields will get monetized.

The only drawback for natural gas is that when compared to oil its transportation
can only be either through pipelines or LNG tankers. In view of this LNG is not
traded the way oil is traded several times before it reaches the final consumers.
Inspite of its drawbacks the advantages for LNG are far greater and with the
changes in technology, the cost for development, production, transportation of
natural gas will gradually come down.

The major producers of natural gas in the world are located in Gulf and Central
Asia. Qatar, Iran and Russia alone hold more than 58% of world gas reserves. The
other countries which have significant quantity of gas are Saudi Arabia, UAE,
United States, Nigeria, Algeria, Venezuela and Iraq. While Europe and United
States may have some reserves their consumption is so high that they are deficient
in gas and in the future will be major guzzlers of natural gas.

The western countries can afford to pay higher prices, whereas; developing
countries and emerging economies like India and China, though have a great
demand but affordability is a big

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factor .Therefore, demand in developing countries will be price sensitive and the
projections being made in India and China are most ambitious and do not reflect in
a great measure the price sensitivity .The Hydrocarbon Vision demand of India
projected many years back when natural gas prices were very low needs to be
reviewed in the light of the current pricing regime and the future outlook of
natural gas pricing.

Indications are that India and China will have to resort to greater use of coal and
nuclear energy, besides optimizing on non-conventional sources of energy like
wind, solar, bio-mass, bio-diesel etc. In addition to that India will have to focus on
increased production of domestic natural gas onshore as well as offshore and also
develop faster and a greater measure of Coal Bed Methane and Gas Hydrates.

India currently produces about 31.55BCM of gas out which after internal use about
70 mmscmd is made available. About 2.86BCM of gas is made available through
LNG against this the current demand projected is70.12mmscmd,implying a deficit
of 40.27 mmscmd .Therefore, the challenge before the country is how to meet the
gap. The answer lies in:-

1.c Increase in production

2.c Continuing to explore possibilities of transnational pipelines from Iran,
Kazakhstan, Bangladesh or Myanmar (chances of getting natural gas
through pipelines are remote because of techno political factors,
nevertheless, efforts must continue)
3.c Import of natural gas in liquid form (LNG) and encouraging domestic
companies to participate in the LNG supply chain.

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While LNG availability will increase but at the same time pricing will be an issue,
but whatever the price it will still be cheaper than crude oil, so one has to exercise
his judgment and optimize on the most competitive energy basket.

India us fortunately placed logistically around the countries which produce or are
likely to produce LNG .For the west coast the suppliers are Qatar, Yemen, Oman,
UAE, Iran ,the east coast suppliers are Malaysia, Brunei, Australia .The other
suppliers could be Nigeria , Algeria, Egypt, Libya, but on account of distance the
transportation costs would be higher. In spite of this logistical advantage sourcing
LNG for India is one of the biggest challenges. If we look at the last five years
India has lost major opportunities to firm up reasonable contracts in a rising market
just because people in the government and in the industry are affected more by the
issue of subsidy pricing rather than looking at the dynamics of international market
and the realization, some feel, has come too late for sourcing LNG at reasonable
prices.

India will have to, given the scenario, be very clear in its mind about the energy
security ,various components of the energy basket and its share together with the
cost of procurement. Unfortunately, the integrated energy policy and its
implementation has been delayed beyond reason, leading to the current situation
where the power and the fertilizer sector (major consumers of crude oil and gas )
are struggling and in the absence of clear directions the future of infrastructural
development in these sectors is badly hampered.

In order to promote greater use of natural gas government needs to think very
seriously on various fiscal measures-reduction of import duty on LNG, declaring
gas sector as an industry and giving it infrastructural status, reduction in custom
duty, decrease in sales tax etc. These issues have been discussed and debated in

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various quarters but for the last five to seven years no solution or resolution has
come about. Until and unless infrastructure in the form of pipeline grid within the
country connecting various producers and consumers is established, you cannot
attain growth and share of natural gas in the energy basket from 9% to 20% in
2025 as per the India
hydrocarbon vision. Foreign investors and multinational companies are not coming
in a big way to invest in an absence of a regulator. Here also the issue of regulator
and regulatory mechanism has been over delayed and thus some urgent steps need
to be taken in this direction to resolve this matter.

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ôc Natural gas is a colorless, odorless, environment-friendly energy source,

which is cleanest of i all the fuels that are traditionally being used in
India.
ôc Natural gas is a highly flammable hydrocarbon gas chiefly
consisting of methane (CH4). It may also include other gases such
as oxygen, hydrogen, nitrogen, ethane, ethylene, propane, and even
some helium.
ôc In India's energy mix, natural gas is the fastest growing energy
source. Its consumption in India is expected to grow by 10% during
2005±2010. This can be met by liquefied natural gas (LNG) imports as
well as domestic gas discoveries.
ôc Natural gas is used mainly in the industrial, commercial,
transportation, and domestic sectors. The power and fertilizer sectors
are the largest consumers of natural gas.
ôc Natural gas, converted into a liquid state by cooling it to ±161ºC,
is termed as LNG. LNG is more compact than natural gas and
occupies 1/600th of its gaseous volume.
ôc Natural gas, when compressed at a pressure of 250 bars, is termed as
compressed natural gas (CNG).

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C1 Methane Fuel and feedstock for urea plants and fuel for
power plants
C2 Ethane Production of petrochemicals
C3 Propane Production of petrochemicals, LPG, auto fuels,
and industrial fuels
C4 Butane Production of LPG
C5 and Other Production of solvents and pentane
heavier Fractions
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Natural gas is clean fossil fuel with many uses. Its key constituent is methane ±the
simplest form of hydrocarbon molecule, Comprising one carbon atom attached to
form a hydrogen atom ± which combines with oxygen when burnt to form carbon
dioxide and water. Methane is a colorless, odorless gas which usually burns with a
blue flame, but if there is not enough oxygen present for complete combustion the
flame turns yellow indicating the presence of soot (pure carbon) and the poisonous
by-product, carbon monoxide. The characteristic smell of natural gas as sold to the
consumer is added, either by the pipeline transmission company or by the local
distribution company to make it easier to identify leaks.

Pipeline gas is not a uniform product since the heat released by burning (its
calorific value) depends on the proportions of its other constituents mainly carbon
dioxide, nitrogen and hydrogen which depend on where the gas comes from.
Increase amounts of carbon dioxide and nitrogen that dilute natural gas reduce its
constraint for entry to gas pipeline networks and producers must be able to supply
natural gas which meets the relatively narrow quality specifications laid down by
pipeline operators.

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Natural gas, like crude oil is produced by drilling into underground reservoirs
where hydrocarbons were trapped millions of years ago. It generally occurs at high
pressure and doesn¶t require secondary recovery (as with oil) although it may
require compression for onward transmission via-pipelines. Natural gas and oil are
usually formed together, albeit in very different proportions all natural gas
produced has some liquid hydrocarbons associated with it and all crude oil
contains some natural gas-but there are three main forms:

ôc Associated gas, produced with crude oil and separated at or close to the
well head also known as casing head gas oil well gas or dissolved gas.
ôc Gas condensate, a two phase mixture of liquid hydrocarbons from which
natural gas can be separated.
ôc Dry (or non ± associated) gas light hydrocarbon in gaseous form.

The composition of natural gas varies widely from reservoir to reservoir although
the basic hydrocarbon constituents are usually the same mainly methane together
with significant amounts of ethane and propane, also small amounts of heavier

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hydrocarbons such as butane, pentane, hexane and heptane all of which can be
recovered by simple processes which rely on the different physical properties of
each type of hydrocarbon. Natural gas with a relatively high proportion of
liquefiable heavy hydrocarbons is described as µwet¶ or µrich¶ while gas with a low
proportion of heavy hydrocarbons or gas that has been processed to remove,
liquefiable heavy hydrocarbons is described as µdry¶ or µlean¶

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The two primary uses for natural gas are as a fuel and as a petrochemical
feedstock, and consequently the three basic reasons for processing raw natural gas
are the following:c

ôc PURIFCATION = Removal of materials, valuable or not, that inhibit the use

of the gas as an industrial or residential fuel.
ôc SEPRATION = Splitting out of components that have greater value as
petrochemical feedstock¶s stand alone fuels (e.g. propane) or industrial
gases (e.g. ethane, helium).
ôc LIQUEFACTION = Increase of the energy density of the gas for storage or
transportation.

Although the principal use of natural gas in terms is the production of pipeline
quality gas for distribution to residential and industrial consumers for fuel a
number of components in natural gas are often separated from the bulk gas and
sold separately.

The composition of natural gas varies considerably from location to location and as
with petroleum products. In general, the specifications for salable products from
gas processing are generally in terms of both composition and performance
criteria. For natural gas these criteria include wobbe number, heating value, total
inert, water, oxygen and sulfur content. The first two criteria relate to combustion
characteristics. The later three provide protection from pipeline plugging and
corrosion.c

lc åc = Determination of the heating value of a fuel involves two

arbitrary, but conventional standard states for the water formed in the
reaction.

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 1.c All the water formed is a liquid gross heating value frequently called
Gross Heating Value i.e. (GHV).

2.c All the water formed is a gas net heating value, frequently called lower
heating value i.e. (LHV)

The gas industry always uses the gross heating value in custody transfer. Heating
value for custody transfer is determined either by direct measurement, in which
calorimeter is used or by computation of the value on the basis of gas analysis.

lc rc  = In gas appliances maintenance of the same combustion

characteristics are desirable when one gas composition is switched to
another. Several factors must be considered but one of the more important.

Consideration is maintenance of the some heat release at the burner for a

given pressure drop through a control value. This combustion is measured
by the wobbe number defined as the gross heating value of the gas divided
by the square root of the specific gravity

WB = Gross Heating Value or Calorific Value

Sq. root (Specific Gravity)

The wobbe number has a value between 1100 and 1400.

Gas is moving closer to being a global industry. The geographical dislocation of

reserves to market is being partly mitigated by new cost-effective ways of linking
stranded fields and customers. Progress on integrating supply and demand is likely
to accelerate and, as economies of scale increase and new alliances are formed,
regional markets will continue to develop and coalesce. At the same time,
liberalization of markets is heralding new choice for customers, more dynamic,

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liquid gas trading conditions for gas companies, a changing balance of risk and
reward for all players.

c

ôc Electricity generation by utilities: Fuel for base load power plants and
cycle/cogeneration power plants.

ô c Public and commercial: Natural gas is a clean fuel for use in household.
The household use of piped natural gas (PNG) is expected to increase in
future.

ôc Industrial: Natural gas is used as a fuel for all the utilities like
boilers, furnaces, baking ovens, air conditioning, etc. It is also used as a
feedstock by fertilizer companies.

ôc Alternative motor fuel : Used in compressed (or CNG) form.

ôc Petrochemicals : A variety of chemicals products (for example : ethanol)

can be derived from Natural Gas.
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GAIL (India) Limited is the largest downstream gas entity in the country,
accounting for 79 percent of natural gas transmission in India and the largest share
in Natural Gas sales and marketing. GAIL also has CNG retail operations in
Mumbai and Delhi and is one of the major LPG producers in the country.

1.c GAIL is a public sector company set up in 1984. Until 2004, it was wholly
owned by the government of India. In 2004, the government offloaded 10
per cent stake in the company in the primary market. Government continues
to be a majority stakeholder in the company at 57.34 per cent. Other equity
holders are institutional investors (17.39 per cent) and others (25.25 per
cent).

2.c The company¶s scope of operation ranges from gas marketing and
distribution (through truck and regional systems) to gas processing, retailing
of natural gas, and marketing of LPG, Liquid Hydrocarbons and
Petrochemicals. Gas transmission and distribution constitute a significant
part of GAIL¶s business, followed by gas processing for LPG production
and for polymer manufacturing.

3.c Although, GAIL was set up initially as an entity for natural distribution and
marketing, it has begun to foray into other segments of the gas industry and
also invested in related sectors such as power and telecom.

Gail India was set up as a primary gas transmission company in India for the
development of natural gas sector. Natural Gas has the potential to become a
sought after source of energy in the coming future as it is one of the most efficient,
economical and non polluting fuels. Natural Gas satisfies most of the requirements
for fuel in a modern day industrial society because of its low price, efficiency and
low pollution. The periodic uncertainties and volatility in both the price and supply
of oil have also helped Natural Gas emerge as a major fuel.

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Natural Gas comes in 4 basic forms:

ôc Liquified Natural Gas, LNG - Natural Gas which has been liquefied at -
160oC Natural Gas is liquefied to facilitate transportation in cryogenic
tankers across sea.
ôc Regasified Liquefied Natural Gas, RLNG.
ôc Compressed Natural gas, CNG - Natural Gas compressed to a pressure of
200-250 kg/cm2 used as fuel for transportation.
ôc Piped Natural gas, PNG - Natural Gas distributed through pipeline network
that has safety valves to maintain the pressure assuring safe, uninterrupted
supply to the domestic sector.

Gail owns and operates Natural Gas network of high pressure trunk pipelines
which are capable of carrying 148 MMSCMD of natural gas, about 7000 km
spread out. It supplies about 80 million cubic meters of natural gas per day to
power plants as fuel, to gas based fertilizer plants as feedstock and other 500 small,
medium and large industries. Gail has a share of 79% in the transmission business
and about 70% in the gas marketing business in India.

Even after 25 years Natural Gas still continues to be the core business of Gail.
During 2007-08 natural gas sales were 69.10 MMSCMD and Gas transmission was
82.10 MMSCMD. Gail still has a major focus on being a dominant player in the
gas transmission business and further expand the customer base. Gail is
considering more expansion and is planning to add 5000 km of pipelines during the
11th plan. Gail plans to build up a pipeline grid as it would be made up of large
trunk pipelines which will be connected together by smaller pipelines. Although
Gail has a transmission capacity of 148 MMSCMD but only 80 MMSCMD which
is about 55% is utilized as the supply is limited.

The approval from the Ministry of Petroleum and Natural Gas (MoPNG) received
by Gail for five new natural gas pipelines in India was a significant development.
The pipelines approved for EOI are:

1.c 610 km Dadri-Bawana-Nangal pipeline passing through UP, Delhi,

Haryana & Punjab.

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 2.c 876 km Jagdishpur-Haldia passing through West Bengal, Jharkhand,
Bihar & UP.

3.c 310 km Chainsa-Gurgaon-Jhajjhar-Hissar pipeline passing through

Haryana & Rajasthan.

4.c 730 km Dabhol-Bangalore pipeline passing through Maharashtra &

Karnataka.
c

c 840 km Kochi-Kanjirkkod-Bangalore/Mangalore pipeline passing
through Kerela, Tamil Nadu and Karnataka.c
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c
ôc The natural gas ecosystem is being dominated by explorers and
producers (ONGC, OIL, RIL and JVs); processing companies (ONGC,
GAIL, OIL, and IPCL); and transmission, distribution, and marketing
entities (GAIL, GSPL, RIL).

ôc The Indian energy requirement shall keep pace with the expected
GDP growth during the next few decades. Share of natural gas, as a
primary energy resource, is expected to grow from 8.87% in 2004 to
22.71% by 2032 in the overall basket.
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GAIL INDIA LTD, previously known as Gas Authority Of India Ltd is a premier
company in India dealing with Natural Gas business. It was incorporated in 1984
as a gas transmission company. In the span of these 25 years company has grown
in a gradual manner, and now operates in almost all the areas of natural gas
business. It is now an integrated company operating in transmission, marketing,
E&P, and processing as well. Apart from these it is also into CGD and telecom
sector through its subsidiaries. Main areas of business operations can be
summarized as follows:

Natural Gas:

Gail is the principal natural gas transmission and marketing company in India. It
currently holds around 79% share in gas transmission and 76% share in gas
marketing business in the domestic market. The company currently owns 7000
kms of gas trunk pipeline with a capacity to transport 150 MMSCMD of gas. Five
more pipelines are under construction which will further add about 5000 kms to its
transmission network. Company is operating at 55% capacity utilisation of its
current capacity. With the increase in domestic production as well as new supplies
from abroad, company will be able to enhance this to the utmost possible levels.

Petrochemicals:

Company owns and operates an integrated gas based petrochemical complex at

PATA, Uttar Pradesh. It is one of the major players in petrochemicals in the
country apart from Reliance and Haldia petrochemicals. It is mainly producing
different grades of polymers. Current operating capacity is about 400, 000 TPA of
Ethylene and 410, 000 TPA of HDPE and LLDPE. Company is also going to open
new Petrochemical plant in Assam.
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LPG Transmission and Processing:

Gail India is the only company which owns and operates for LPG transmission. It
has got a network of 1900 kms of LPG pipeline. Out of this 1300 kms connects
western and northern India and 600 kms of pipeline caters to need of southern parts
of the country. Current operating capacity is 3.8 MMTPA. Jamnagar- Loni pipeline
is the major one in this network.

Apart from transmission company also owns 7 plants in which it processes LPG
and other liquid hydrocarbons. Production for the year 2008-09 is about 1.088
million tons, which is fulfilling about 15% of country¶s LPG requirements.

City Gas Distribution:

Gail was the pioneer in city gas distribution business in India. With the aim of
providing benefits of this green fuel to the individual citizens, company formed 8
joint ventures with other oil marketing companies. It has established its wholly
owned subsidiary GAIL GAS LTD to ensure continuous and quality supply of gas
to domestic and industrial customers. This subsidiary will try to materialize the
dream of pan India CGD corridor. On the global front Gail has established its CGD
presence in EGYPT and in mainland CHINA.

Telecommunication:

Gail is also operating in telecom sector through its subsidiary GAILTEL.

Leveraging on its pipeline network company has built a strong OFC network of 12,
200 kms. It is used for monitoring the pipelines as well as it is leased to other
telecom service providers as well.

Exploration and Production:

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As company is now integrating all aspects of natural gas business it has also
forayed into E&P sector. Gail currently holds a participating interest of 10 to 80
percent in 27 oil and gas blocks. Gail consortium has participating interest in three
CBM blocks in the country in collaboration with Arrow Energy of Australia,
Energy Infrastructure Group and Tata Power.

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÷
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GAIL (India) Limited, is India's flagship Natural Gas company, integrating all
aspects of the Natural Gas value chain (including Exploration & Production,
Processing, Transmission, Distribution and Marketing) and its related services. The
company is operating in a concentrated industry which is highly capital intensive
as well as technology oriented. Thus there are not many players in this industry.
Even then existing companies as well as the potential entrants may pose significant
competition. While in a highly fragmented commodity industries the move of any
single competitor may be less important, in concentrated industries competitor
analysis becomes the vital part of STRATEGIC PLANNING.

Competitor analysis is a systematic approach of analyzing competitor¶s business

from diverse angles and drawing inferences out of them. Casual knowledge about
the competitors is usually insufficient in competitor analysis. Rather competitors
should be analyzed systematically, using organized competitor intelligence-
gathering to compile a wide array of information so that a well informed strategy
decisions can be made.

Competitor analysis mainly involves two activities:

±c Gathering information about important competitors.

±c Using that information to predict competitor behavior.

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The goal of competitor analysis is to understand:

±c With which competitors to compete.

±c Competitor¶s strategies and planned actions.
±c How competitors might react to company¶s actions.
±c How to influence competitor behavior to company¶s own advantage.

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As it is clear from the word itself, competitors means other companies operating in
the same business that Gail India Ltd is doing. One can categorize the different
competitors of the company according to different business operations GAIL is
engaged in.


c
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It is basically transportation of natural gas from one place to other with the help of
high pressure trunk pipelines. GAIL is a dominating player of this business in
India. It holds around 79% share in gas transmission business owing the network
of 7000 kms with the capacity to carry 148 MMSCMD of natural gas. Apart from
GAIL, other companies operating in this business are as follows:

±c Reliance industries
±c Gujarat State Petronet Ltd


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GAIL operates north India¶s only integrated petrochemical complex at PATA,

UTTAR PRADESH. It is producing 400,000 TPA of Ethylene and 410,000 TPA of
polymers i.e. HDPE and LLDPE. Other players of this business are:

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 ±c Reliance Industries.
±c Haldia Petrochemicals
±c Oil And Natural Gas Corporation(Upcoming Plant At Dahej)
±c Indian Oil Corporation Ltd(Upcoming Plant At Panipat)

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<÷÷ c

As far as LPG transmission is concerned Gail is the only company which owns and
operates pipelines for LPG transmission in the country, thus as such it holds a
complete monopoly in this segment and no competition is present.

On the other hand in LPG Processing some more business concerns are operating:

±c Hindustan petroleum corporation ltd

±c Indian Oil Corporation Ltd
±c Bharat Petroleum corporation Ltd
±c Oil And Natural Gas Corporation
±c Reliance Industries
±c Essar

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GAIL was pioneer of city gas distribution projects in India. In the beginning it
formed joint ventures with different companies for developing CGD networks in
different cities. Subsequently Gail floated its own subsidiary GAIL GAS LTD to
materialise the dream of CITY GAS CORRIDOR. Companies competing with Gail
Gas are as follows:

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 ±c Aawantika Gas Ltd (Gail + HPCL)
±c Bhagyanagar Gas Ltd (Gail + HPCL)
±c Central UP Gas Ltd (Gail+ BPCL)
±c Green Gas Ltd (Gail+ IOCL)
±c Maharashtra Natural Gas Ltd (Gail+ BPCL)
±c Mahanagar Gas Ltd (Gail+ BJ Industries)
±c Indraprastha Gas Ltd (Gail+ BPCL)
±c Tripura Natural Gas Ltd (Gail+ TIDC+ Assam Gas Comp Ltd)
±c Sabarmati Gas Ltd (BPCL+GSPC)
±c Gujrat Gas Ltd (100% British Gas India Ltd)
±c Reliance Gas
±c DSM Infratech
±c Adani Energy


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Gas accounts for 34% of the energy basket in the Former Soviet Union region and
in Europe, 24% in USA, 15% in Japan and 14% in Korea. The world average is
24%. In India, gas accounts for just 8% of the energy basket constrained by limited
availability of gas and nascent transmission and distribution infrastructure. The
share of gas in the global energy mix is set to increase primarily driven by the
power sector, industrial sector, city gas distribution and gas-to-liquid opportunities.
Gas is preferred because of its cost competitiveness and environmental advantages

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over other fossil fuels. Gas is also more convenient to use vis-à-vis other fossil
fuels.
Accelerating global demand, increasing import dependency, and the build-out of
LNG infrastructure are supporting price discovery. Industry expectations suggest
continued strength in global GDP over the long-term driven by developing
economies of Asia and the Middle East and a 40% increase in LNG liquefaction
capacity over the coming 3 years addressing 11% of global demand by 2010.
Powerful trends are supporting demand growth and prices in both the developed
and developing nations. In 2007-08, Henry Hub Prices averaged $ 7.4 / MMBTU.
In Europe, the NBP prices averaged 40 pence per therm which is the equivalent of
around $ 8 /MMBTU. The Asian LNG prices were $ 9.5 /MMBTU based on
average for prices in Japan and Korea. Long term contracts signed by China for
LNG are at around $ 10 /MMBTU (FOB).
These contracts are for 2-3 MMTPA and the first sale is expected to commence in
the year 2013 14.
In the developed world, natural gas is the only near-term generation option to
bridge the energy gap. A similar trend is clear in Asia and Australia. In the
developing world, rapid economic growth is fueling energy demand in all its
forms. Natural gas has been a niche fuel, not easily available due to infrastructure
constraints and domestic productive capacity. However, the price of alternative
fuels (particularly crude products) is supporting a re-evaluation of energy source,
which in many cases favors natural gas. While nuclear and renewable remain the
long term ³green´ solutions of choice, natural gas will remain the primary near-
term alternative to meet the demand for growth in generation in developed and
developing economies.

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The landscape of the Indian natural gas market is set to witness significant change.
Natural gas currently accounts for around 8% of the total energy mix in India as
against the global average of 24%. However, with increased availability and spurt
in transmission and distribution infrastructure, the share of natural gas in the
energy mix is set to rise. For 2007-08, gas production is expected to be 88
MMSCMD and LNG consumption is estimated at 33 MMSCMD.
Majority share in natural gas demand is held by POWER and FERTILIZER sector
which consumes around 36% and 29% respectively of the total gas supplied. Due
to changing policies and regulations fertilizer plants are making the shift from
other liquid fuels to natural gas. Also natural gas is reaching to individual
customers in the form of CNG and PNG as auto fuel and domestic fuel
respectively. The demand for natural gas is expected to grow from 196 MMSCMD
in 2008-09 to 279 MMSCMD by 2011-12 as per the report of working group on
Petroleum and Natural gas for XI-plan.
The major demand centers, excepting the north-eastern market which is not
connected to the transmission network of the rest of India, have been considered
for making demand projections. The un-met demand for natural gas is estimated to
increase from about 113 MMSCMD (FY 2007-08) to 396 MMSCMD by the year
2022.
The following factors are expected to drive the increase consumption of natural gas
in India:
‡ Macro-economic factors
‡ Growth of end-user segments
‡ Cost of gas vis-à-vis alternate liquid fuels
‡ Regulation and policy making

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‡ Environmental concerns
‡ New uses of natural gas (for example, co-generation)
As far as the supply scenario is concerned the total of average gas supplied to
various consumers through domestic production and from LNG is around 154
MMSCMD. It is expected to rise to 191 MMSCMD by 2011-12.

Overseeing the abovementioned Natural gas scenario in India and abroad it

becomes important for the company operating principally in this business to review
present and future challenges from time to time. Competitor analysis is a very
efficient and effective tool to achieve this objective. The approach of this study is
to analyze each company from different angles with the aim to figure out the future
business strategy. The study will cover all the aspects like Business operations,
financial performance, product range and the future outlook as well. Here the
researcher has adopted the methodology to analyze the competitors of the company
in each business operation.

GAIL India Ltd is the premier company in India for gas transmission. It¶s connects
various demand centers and suppliers of natural gas through its wide spread
transmission network spanning around 7000 kms with capacity to transport 148
MMSCMD of gas. Before some years GAIL was the only company operating in
this business but slowly some other players also entered in the transmission sphere.
Still the company is a dominant player as it is a highly capital intensive and time
taking venture. In the present scenario two major competitors of GAIL in gas
transmission business are:

ôc Reliance Gas Transportation and Infrastructure Ltd.

ôc Gujarat State Petronet Ltd.

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RGTIL was incorporated as Petroleum Transportation And Infrastructure Ltd on

June 4, 1999.It was promoted by the group companies of Reliance Industries and
commenced its business from August 02, 1999. The company is in the business of
developing cross country pipeline foe transportation of natural gas/hydrocarbons.

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The company has constructed $%&&c 'c (rc)c c!'cc

* * to transport natural gas from KG Basin.cIt originates at Kakinada in the
state of Andhra Pradesh and terminates at Bharuch in the state of Gujarat. It is
known as the East-West Pipe Line (EWPL) as it connects the gas produced from
the Krishna Godavari (KG) basin located in the Eastern India to the demand
centers in Western and Northern India. EWPL consist of two segments viz,
Kakinada ± Hyderabad and Hyderabad- Bharuch and is a 48 inch single diameter
pipeline with total length of about 1386 km. The pipeline transverses through the
states of Andhra Pradesh,
Karnataka, Maharashtra, and Gujarat. Initially, the pipeline was designed for a
capacity of 40 MMSCMD; however the same has been increased to 80 MMSCMD.
The thickness of the pipeline was selected in such a way that at any given later
date, carrying capacity of the pipeline could be increased by increasing the inlet
pressure and number of compressors along the pipeline.
RGTIL is also in the process of implementing four pipelines that will interconnect
with the east-west network. These are the
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Relogistics Infrastructure limited, a subsidiary of RGTIL will be implementing

these projects to facilitate faster implementation and better control over logistics
part.

RGTIL and GAIL in December 2007 signed gas transmission agreement for using
the national carrier¶s pipeline infrastructure to take gas; Reliance was planning to
produce from its KG Basin blocks.c East-West pipeline would be connected with
GAIL¶s Hazira -Vijaipur-Jagdishpur and Dahej-Vijaipur pipeline network at

' in Gujarat, Dahej-Uran and Dabhol-Panvel pipeline network at <*' in

Maharashtra and Krishna Godavari basin pipeline network at   in Andhra
Pradesh.

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GSPL was established on December 23, 1998 as a subsidiary of # c c
 c   . As Gujarat is having a large number of industries,
therefore it has got a very high demand of natural gas as a industrial as well as
domestic fuel. Keeping in mind the large business opportunity GSPC floated GSPL
as its subsidiary with the aim to revolutionize the gas transmission business in the
state.
GSPL is engaged into transmission of natural gas in the state of Gujarat and it has
the second largest natural gas transmission network in India. It was promoted by
Gujarat State Petroleum Corporation Limited (GSPC) and it commenced
transportation of natural gas in November 2000. Its other stake holders include
Gujarat Maritime Board (GMB), Gujarat Urja Vikas Nigam Limited (GUVN),
Gujarat State Electricity Company Limited (GSEC), Gujarat Narmada Valley
Fertilizers Company Limited (GNFC) and Gujarat Industrial Development
Corporation (GIDC), and private investors such as India Development Fund (IDF)

ôc First pipeline commissioned in 2000-01 from å.  to < . It was

36´x14 kms long.
ôc Ten years down the line company is having a huge gas transmission network
of gas pipeline of about 1280 kms spanning 16 districts of Gujarat state.
ôc About 1280 Kms of pipeline is already laid and is under operation from
Hazira-Baroda-Ahmedabad-Kalol-Himmatnagar-Mehsana-Rajkot-Morbi-
Vapi.
ôc GSPL proposes to lay high-pressure pipelines covering various industrial
belts and cities of Gujarat. Looking to the importance of such a grid in
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 realizing Gujarat's aim of emerging as the 'Petro Capital' of the Country, the
state government has accorded 'Infrastructure Project' status to it. It is the
only gas grid in the country that functions on an c
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meaning thereby that other gas producers are also allowed access to it
against a fee.
ôc Current volume of gas transmitted is 18 MMSCMD.

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Company has been continuously developing pipeline infrastructure in Gujarat.
Ongoing projects are as under
ôc Rajkot-Vadinar Pipeline Project (30"x 110 km)
ôc Bhadbut- Gana Pipeline Project (30"x 109 km)
ôc Gana- Hadala Pipeline Project (30" x 85 km)
ôc Petronet LNG Connectivity (24"x .035 km)
ôc Morbi - Mundra Pipeline Project (18" x 130 km)
ôc Baroda - Halol Pipeline Project (12" x 37 km)
ôc Suzlon Spur line (8" x 28 km)
ôc IPCL Connectivity (12" x 3.5 km)
ôc ONGC - Olpad (12" x 5 km)
ôc IOCL Connectivity (12" x 5 km)
ôc Olpad - GSEC Utran Pipeline Project (12" x 15 km)


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ôc As Gujarat is gradually shifting towards the gas based economy future offers
a large chunk of opportunities. As a common carrier with a largest gas grid

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 infrastructure GSPL is aiming for large capacity expansion. The company
aims to increase present gas grid to 2500 kms supplying gas to 25 districts of
Gujarat.
ôc To enhance and upgrade technologies to improve operational efficiencies
while maintaining a team and proactive environment.
ôc Actively enable and facilitate city gas distribution initiatives by public and
private players across Gujarat.
ôc To explore an opportunity to extend and replicate the grid in the neighboring
state of Rajasthan.

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ôc The current import of natural gas is around 22% of the domestic

consumption. This is likely to grow to 33% by 2010±2011.
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 ôc Though there is a decline in the gas availability in India from the
existing resources, there have been several large discoveries of the gas
reserves by various private sectors, joint ventures, and public sectors,
which would significantly contribute to the gas availability.

ôc The supply of gas from private sectors is expected to increase to

64% by 2010±2011.

ôc Current trends (recent LNG imports) in the industry demonstrate

convergence of Indian prices to the international level. This may
continue with the government policies to integrate the hydrocarbon sector
with the international market.

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ôc Natural gas supply is expected to increase by 143% over the next
five years, because many gas discoveries are starting their production and
various LNG projects are being commissioned or expanded.

ôc Transnational gas pipelines are being planned and pursued with great
vigor by companies like GAIL, Reliance, etc. This will result in a better
flow of gas to the deficit regions in the country.

ôc As per India Hydrocarbon Vision 2025, the natural gas demand is

expected to be 313 million standard cubic meter per day (MMSCMD) by
2011±2012.

ôc New sources of gaseous fuel, like coal bed methane, underground coal
gasification, etc., will be opened up.

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The power and fertilizer sectors together account for nearly 70% of the total
natural gas consumed in the country. However, the power and fertilizer sectors
could continue to be the anchor customers for gas marketers. The factors which
determine the gas demand of the country are as follows:

+ cThermal plants at coal pit heads transmitting power to regional load
centres will be the cheapest source of electricity at most locations in the country.
However, if the ambitious GoI target of setting up an additional 100,000 MW
capacity by 2012 were to be achieved, developers would necessarily have to look
at R-LNG/natural gas as a fuel source. Gas-based power plants have significant
advantages over coal such as short gestation period for establishment, high thermal
efficiency, ability to meet peak load requirements and minimum greenhouse gas
and pollutant emission.

 . cAn estimated incremental demand of 14 MMSCMD is reasonably

certain from the naphtha/FO based urea units converting to R-LNG, as there are
significant savings to be made on the subsidy front, in view of the higher prices of
alternative feed stocks. The new urea policy is likely to have a definite timeframe
for the units on conversion.

÷ cGas demand from the industrial segment is expected to arise primarily
from the replacement of traditional liquid fuels such as FO, LSHS and LDO, as
well as LPG, with natural gas for the captive generation of power and meeting the
requirements of other utilities. Many industrial units in Gujarat and along the HVJ
pipeline have been buying gas at market rates from R-LNG marketers and
private/JV companies because of the cost savings vis-à-vis use of liquid fuels. This
process is expected to gather further momentum once the gas distribution networks
expand to other cities.

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It is evident that the Indian gas market is undergoing rapid expansion. Gas is fast
replacing the conventional fuels like coal and naphtha. Given this shift to gas as
fuel by power, fertilizer, and automobile industry, it is evident that demand for gas
will far outgrow its availability, if steps are not taken to improve the supply
scenario in the country.

On the supply front, adequate availability of gas is dependent upon various factors.
The exploration and production companies will have to make efforts to increase
domestic gas production by making new discoveries. The option of producing gas
from coal bed methane needs also to be pursued. Further, initiatives need to be
taken to import gas through pipelines and in the form of LNG.

The demand and supply need to be balanced in order to make natural gas an
economically viable fuel. Most of India¶s gas is produced from the western
offshore fields which include south Bassein fields, joint venture fields of Tapti &
Panna ± Muktaand production of associated Natural Gas from Mumbai high. The
gas supplies from South Bassein fields and JV fields are feed into HVJ system for
gas supply to Northern and North ± western part of India including Gujarat. With
supply of gas starting this year from RIL discovered reserves in KG Basin, the
demand supply gap will be bridged substantially. The other onshore gas producing
regions within the country are as follows:

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±c Cauvery Basin.

±c KG Basin.

±c North Eastern region including Assam & Tripura.

±c Rajasthan.

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In addition to the existing gas fields, new sources are being discovered in various
blocks allocated under several rounds of New Exploration Licensing Policy
(NELP). Major discoveries like that of D6 field in K G Basin by RIL can change
the complete Natural Gas map of the country. Recent announcements of new
discoveries by ONGC, GSPC, RIL, etc. give a positive signal in this direction.

(c*cConsiderable headway has been made with regards to

exploitation of CBM (coal-bed methane) resources. A conservative estimate places
reserves at about 850 BCM, with the Gondwana basin accounting for 837 BCM
and the tertiary basins, 13 BCM. Seven CBM blocks were put on offer in April
2001²two in Jharkhand (Bokaro and North Karanpura), three in Madhya Pradesh
(East and West Sohagpur and Satpura), and one each in Rajasthan (Barmer) and
West Bengal (Raniganj). Exploitation of these would be structured on a revised
model contract, which is a modified version of the NELP. Unlike the traditional
profit-sharing contract, these blocks are being offered under a production-linked
programme. Estimated µin place¶ reserves of these blocks are about 478 BCM.
The exploration programme, as charted by the Directorate General of
Hydrocarbons, envisages a minimum of 8 years for exploration, pilot assessment,
and market confirmation (DGH 1999), followed by a development phase of 5
years. Preliminary estimates indicate a production potential of 17 BCM from the

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blocks on offer. Even if a fourth of this potential is realized by 2020, domestic
CBM production could be expectedto be about 4.4 BCM.

c*, cccProduction of gas from hydrate-sealed traps is somewhat

sustainable as the reduction of pressure caused by production can initiate a
breakdown of hydrates and a recharging of the trap with gas. However, unlike
CBM, gas production from hydrates is not a commercially proven technology as
yet and, given the very preliminary stage of efforts, gas production from hydrates
has been excluded from possible supply sources in this analysis.

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While petroleum products can be imported via a wide array of modes, gas imports
are restricted to those via pipelines and as Liquefied Natural Gas (LNG). Pipeline
imports would necessitate the development of an extensive trans-national pipeline
network. While considerable attention has been focused on the issue, no concrete
project has emerged as yet. There are a number of possible routes that can be
established depending upon the choice of sources of gas supplies.
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ccWhile Central Asia has been endowed with substantial hydrocarbon
resources, their development has been limited due to lack of access to markets. The
region has an estimated 16-18.9 TCM of gas reserves with Turkmenistan
accounting for the bulk of these reserves (7.3-8.9 TCM). Since 1997, the
Government of Turkmenistan has continued to discuss the possibility of a pipeline
through Afghanistan to India. A Joint Working Group on energy continues to
explore possibilities of exporting Turkmen oil and gas to India.

÷ ccIran with gas reserves of 23 TCM has the second largest gas reserves in the
world. India and Pakistan both are keen to import gas from Iran and IPI (Iran-
Pakistan-India) pipeline has been much talked about project in the recent past.
However, several meetings and negotiations have been held and the final results
are yet to emerge.

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ccOman has total gas reserves of 850 BCM. In 1994, Oman signed an
agreement with India to build a 600 mile underwater pipeline to carry gas from
Ras-al-Jifan gas field to Gujarat, in western India. Further development on the
project were stalled on account of technical difficulties related to the depth of the
proposed pipeline.

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Analysts expect that India¶s natural gas import demand will increase in the coming
years. To help meet this growing demand, a number of import schemes including
both LNG and pipeline projects have either been implemented or considered.

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India has considered various proposals for international pipeline connections with
other countries. One such scheme is the Iran-Pakistan-India (IPI) Pipeline, which
has been under discussion since 1994. While Iran is keen to export its abundant
natural gas resources and India is in search of projects to meet its growing
domestic demand, a variety of economic and political issues have delayed a project
agreement. Indian officials have made it clear that any import pipeline crossing
Pakistan would need to be accompanied by a security guarantee from officials in
Islamabad. Apart from security concerns, natural gas pricing disputes have also
held up an agreement. Both Indian and Pakistani officials refused Iran¶s proposed
price of $8.00 per million Btu (MMBtu), stating that they would not pay more than
$4.25/MMBtu. Due to the uncertainties involving this pipeline, the Indian
government¶s 11th Five Year plan does not project any gas supply from this route
or the following two discussed pipelines.

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India has worked to join onto the Turkmenistan-Afghanistan-Pakistan Pipeline
(TAP or Trans-Afghan Pipeline). With the inclusion of India, the project consists
of a planned 1,050-mile pipeline originating in Turkmenistan¶s Dauletabad natural
gas fields and transporting the fuel to markets in Afghanistan, Pakistan, and India.
In 2008, all parties agreed to induct India as a full member into the project, thereby
renaming the pipeline TAPI. TAPI will have a capacity of 3.2 Bcf/d and work is
expected to commence in 2010, with supplies scheduled to flow in 2015. Concerns
about the project have included the security of the route, which would traverse
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project raised doubts about whether Turkmen natural gas supplies are adequate to
meet proposed export commitments.

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A third international pipeline proposal envisions India importing natural gas from
Myanmar. In March 2006, the governments of India and Myanmar signed a natural
gas supply deal, although a specific pipeline route has yet to be determined.
Initially, the two countries planned to build a pipeline that would cross
Bangladesh. However, after indecision from Bangladeshi authorities over the
plans, India and Myanmar have studied the possibility of building a pipeline that
would terminate in the eastern Indian state of Tripura and not cross Bangladeshi
soil. A proposal to build a pipeline between Myanmar and China may interrupt
India¶s pipeline plans, however.
India is working to enhance its presence in Myanmar in light of its neighbor¶s large
natural gas reserves. Both GAIL and ONGC are investing large sums to obtain
access to blocks of the Swe field containing 200 billion cubic meters (7 Tcf). India
recently signed a deal to build two hydroelectric power plants in Myanmar, largely
perceived as an effort to boost relations between the two countries and enable
further gas supply deals.
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According to Oil and Gas Journal (
, India had 38 trillion cubic feet (Tcf) of
proven natural gas reserves as of January 2009. The EIA estimates that India
produced approximately 1.1 Tcf of natural gas in 2007, up only slightly from 2006
production levels. The bulk of India¶s natural gas production comes from the
western offshore regions, especially the Mumbai High complex. The onshore fields
in Assam, Andhra Pradesh, and Gujarat states are also significant sources of
natural gas. The Bay of Bengal has also become an important source of natural gas
for the country.

In 2007, India consumed roughly 1.5 Tcf of natural gas, approximately 100 Bcf
more than in 2006, according to EIA estimates. Natural gas demand is expected to
grow considerably, largely driven by demand in the power & fertilizer sectors. The
power and fertilizer sectors account for nearly three-quarters of natural gas

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consumption in India. By 2030, EIA expects Asian demand for natural gas to more
than double, and India is expected to be responsible for a sizeable part of that
growth. Natural gas is expected to be an increasingly important component of
energy consumption as the country pursues energy resource diversification and
overall energy security.

Although India¶s natural gas production has consistently increased, demand has
already exceeded supply and the country has been a net importer of natural gas
since 2004. India¶s net imports reached an estimated 353 Bcf in 2007. India
imports natural gas via liquefied natural gas (LNG).
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Until recently, India¶s state-owned companies accounted for the bulk of natural gas
production. State-run companies ONGC and Oil India Ltd. (OIL) were the main
producers of natural gas in the country. According to government statistics, ONGC
accounted for 69 percent of natural gas production in the country in 2007. In
addition, some foreign companies participate in upstream developments in joint-
ventures and production sharing contracts (PSCs). Now Reliance Industries plays a
significant role in the natural gas sector as a result of a large natural gas find in
2002 in the Krishna-Godavari basin from which production has commences this
year.

Natural gas prices in India are also regulated by the government. A major portion
of Natural Gas produced by state-owned companies is sold in accordance with the
Administered Pricing Mechanism (APM). Gas produced from fields acquired
through NELP, production sharing agreements, and imported LNG is not priced
using the APM, although its price is also regulated.

GAIL is a dominant player in natural gas transmission and distribution activities.

In December 2006, the Minister of Petroleum and Natural Gas issued a new policy
that allows foreign investors, private domestic companies, and national oil
companies to hold 100 percent equity stakes in pipeline projects. While GAIL¶s
dominant position in natural gas transmission and distribution is not guaranteed by
statute, it will continue to be the leading player in the sector because of its existing
natural gas infrastructure. The country has a number of major domestic pipelines in
its domestic transmission network with ambitious plans to extend them further.
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1.c The Ministry of Petroleum & Natural Gas (MOP&NG) has been regulating
the allocation and pricing of gas produced by ONGC and OIL by issuing
administrative orders from time to time. The gas produced by the JVs and by
NELP operators is governed by the respective production sharing contracts
(PSC) between the Government and the producers. Recently, Govt. has set
up Petroleum & Natural Gas Regulatory Board which has already started
functioning.

2.c Under the existing policy, 100% Foreign Direct Investment (FDI) is allowed
through the FIPB route for both LNG projects and natural gas pipeline
projects. Import of LNG and natural gas is on OGL.

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A desk where transactions for buying and selling securities occur. Trading desk
can be found in most organizations such as : banks, finance companies etc.,
involved in trading investment instruments such as: equities, fixed-income
securities, futures, commodities and foreign exchange. A trading desk provides
traders with access to instantaneous trade executions. Trading desk can also be
known as ³DEALING DESK´. Trading desks can be either small or large
depending upon the organization and are occupied by licensed traders, usually
speacialising in trading one particular type of investment product such as : forex
traders, commodities traders, stock traders, etc. The instantaneous trade executions
can be particularly important for day traders looking for arbitrage opportunities
that usually last only minutes or even seconds.

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Some companies have one or two of the aforementioned elements at work. The
object is to consolidate these elements into a centralized pricing group. The group
may include someone with procurement and wholesale marketing experience, and
someone with commodity risk management knowledge.

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For those people on the desk who are responsible for price collaboration, the task
may be time consuming and arduous. It involves communicating with over-the-
counter brokers and electronic exchanges on a somewhat consistent basis
(depending upon the company's propensity to transact). The trader should expect to
take calls from the broker on all relevant routes and circuit sizes so the incoming
calls should become as consistent as the outgoing.

The same is true for the electronic sites. The posting and viewing of inquiries to an
electronic site should complement how the brokers use it, but not to the degree that
the market becomes overwhelmed with the same inquiry.

The trading desk is phone and computer based. The screen viewing space for
online systems may become overwhelming. For more advanced risk management
tools, such as options pricing and risk assessment models, various software is
available.

Risk management ideas, trading strategies and interoffice communication will

require time, advanced communications equipment and strong personnel
management.

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The reason to create a trading desk is to establish a progressive, reactive wholesale

pricing function. This takes on many definitions, but the bottom line is to establish
a more market-oriented approach to pricing and transacting deals.

A trading desk assesses the best prices and approach for purchase or sales of
capacity by utilizing alternative pricing sources such as phone brokers, electronic
systems and market makers.

The first two act as transaction intermediaries, which help facilitate trades for
commission. While some companies can not imagine an intermediary bringing
them a better price than their long-standing relationships, the progressive-minded
use the broker as a fee-for-service marketing subcontractor.

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Market makers show a bid & offer for any routes requested. They act as a
counterparty, taking title to deals. They also act as the ³HOUSE´ in an attempt to
make money on the price spread. Most market makers are marketers themselves,
who buy from carriers and sell it to the users.

Using these alternative media is one role of the trading desk. Accessing the prices
available through these parties should complement the prices obtained through
historical relationships. Better prices on a couple long-term transactions can make
up for the cost of implementing a desk.

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The trading desk may:

ôc Act as a pricing source for sales, marketing and engineering teams. These
groups may be distinct from the pricing desk. The sales force may deal with
corporate clients and the pricing desk with wholesale trading partners,
brokers and the sales forces themselves. The sales group obtains pricing
from the trading desk when requested by clients;
ôc Create product and idea structuring for usage by company and for
presentation to clients;
ôc Assist in marketing to most progressive wholesale trading partners;
ôc Seize arbitrage opportunities; and
ôc Support the development and usage of pooling points and master
agreements.

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One of the trading desk's key functions is to implement price risk management
tools for the company and customers. For example, carriers can use the options
market that exists to establish price floors by buying points. Likewise, a carrier
should consider selling call options on their underlying assets. The premium
collected by selling calls is a revenue enhancement. If exercised, the carrier sells

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the circuit at the previously agreed-upon strike price. The future holds the
possibility of financial instruments such as swaps, which provide a necessary
hedge mechanism. In addition to protecting its own assets, the carrier can offer
these products to its clients.

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GAIL has wide natural gas transmission infrastructure. The customers pay
transmission charges to GAIL for transmitting natural gas from supply source. Out
of the total volume of gas transmitted through pipelines, GAIL also markets a
considerable volume at APM prices / market driven prices, depending on the
source. Whether GAIL should establish a trading desk or not, the following
considerations should be taken into account:

ôc Internal risk management and protection from adverse price movements

could potentially result in significant savings. Also, the ability to protect
revenue or establish price ceilings or price floors provides comfort to
bankers and financiers who look for assurances of revenue projections;
ôc While most companies consider themselves pricing proficient, it is to believe
that a more competitive buyer or seller does not exist in the market. To the
extent that finding that "better price" results in significant revenue
enhancement, establishing a dynamic pricing/trading desk pays off;
ôc In an environment of ever-increasing competition, the ability to offer new
products and
ôc risk management to your clients becomes paramount and to the extent that
arbitrage opportunities exist in the market, the trading desk should capture
them. New entrants into the market can mean price disparities. Being in
greater touch with the trading world can help identify these opportunities. If
the trading desk can undertake arbitrage or "back-to-back" transactions, it
creates new revenue potential.

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; Calculation :

Avg. current physical trade of GAIL = 70 MMSCMD

1 MMSCMD = 35,700 mmbtu

70 MMSCMD = 24,99,000 mmbtu

Price of Natural Gas = $ 4.2 per mmbtu

(as per recent GAIL and Reliance agreement)

Revenue generated = 24,99,000 x 4.2

= 1,04,95,800

Trading Margin = 1,04,95,800 x .40 %

= $ 41,983.2 per day

If only 10% volume will be trade through trading desk than Trading margins will
be = 41,983.2 x 10%

= $ 4,198.32

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The high degree of leverage available can work against you as well as for you.
Before deciding to invest in trading market, you should carefully consider your
investment objectives, level of experience and other circumstances. There is a huge
risk with trading desk, of which some are following:

ôc
c c 1 ,c 1c c ',c Trading is totally based upon the
speculation nowadays. As in MCX and other exchanges speculation plays a
major role for change in price of the commodities, same can be happen with
the natural gas trading desk.c
ôc å*c 1 c c +c  c c c c ;'c c c The high
leverage and low margin will be associated with the natural gas trading desk
which can result in significant losses due to price changes in foreign
exchange contracts and cross currency contracts. The amount of initial
margin may be small value of foreign currency so that transactions are
leveraged or geared. A relatively small market movement may have a
proportionately larger impact on the funds you have deposited or will have
to deposit : this may work against you as well as for you.
ôc '( c   c  c  c c The placing of certain orders (e.e.,
stop-loss orders or stop limit orders) which are intended to limit losses to
certain amounts, may not be effective because market conditions may make
it impossible to execute such orders. Strategies using combinations of
positions, may be as risky as taking simple long or short positions.
ôc c 'c  c c c 4c c Nowadays trading is very
fast. An order of buy or sell can be executed by just a click of mouse. It can
be lead to a loss or profit it will be depend upon the condition i.e. what is
your position. A short mistake can be convert into huge loss.
ôc
*c   c c c 4c c Market orders executed
through trading desk are completed when we say deal or done. At that point
customer has bought or sold and cannot cancel the market order. By placing
market orders through trading desk, customer agrees to such immediate
execution and accepts the risk of this immediate execution. Disturbances can
be possible with the telephone signals which may lead to unwanted results.

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c c * c # c c Transactions on market in other
jurisdiction, including markets formally linked to a domestic market, may
expose you to additional risk. Such markets may be subject to regulation,
which may offer different or diminished investor protection. Before you
trade you should enquire about any rules relevant to your particular
transactions. Your local regulatory authority will be unable to compel the
enforcement of the rules of regulatory authorities or markets in other
jurisdictions where your transactions have been effected.
ôc + c  c c You are obligated to keep passwords secret and
ensure that third parties do not obtain access to your online account. You
will be liable for trades executed by means of your password even if such
use may be wrongful.
ôc  c ,c c c c c c c c c Due to market
conditions or other circumstances we may unable to close out customer¶s
position at the level specified by customer, and customer agrees that we will
bear no liability for failure to do so.
ôc
c*cc"ccOur personnel and affiliates and various other
parties may execute orders at the same or better prices ahead of a customer
order.
ôc ÷ c ccThere are risks associated with utilizing an internet based
deal execution trading system including, but not limited to, the failure of
hardware, software and internet connection. This can be happen at any point
of time because it is out of control. Happening of any unwanted fault can be
lead to an unwanted results.
ôc c c c *c  c c It is very essential that the customer
should be financially sound, because in trading margin money will be
deposited, if customer will not be able to pay desired money at the time of
delivery than it would be a problem.

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Natural gas trading refers to the resale of natural gas in the wholesale market, and
supply to resale in the retail market. (In the United States gas trading and
independent gas supply are considered part of marketing.) Because these two
operations are closely related, they are often performed by the same firm. The gas
trading and supply business is a very competitive segment because of the limited
scale economies. Traders and suppliers need little up-front investment to start
operations² a trader needs only a desk, a computer, and a telephone to contact
customers and make deals. As a result, the optimal size of a gas trader or supplier
is small relative to the gas market. This optimal size increases with deregulation of
the industry² because markets become more complex, with increasing use of
short-term and financial transactions² but not enough to pose a threat to
competition in the segment.

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Long-term contracts will only be signed if there is a secure potential for an outlet.
The fact that the national markets are immature with weak internal infrastructures,
means that most potential outlets in the new markets (about 85%) are in the fields
of electricity production, chemical usage and some other big consuming sectors.
This fact alone restricts the potential for development, and as a result the import
projects are mostly linked to electricity production projects; this is a well-known
pattern already encountered in previous market developments in Japan and South
Korea. It will be favored in future because of the liberalization of the electricity

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industry and the advent of independent power producers using combined cycle gas
turbine equipment. In future,

However, it will also be severely restricted by the level of networks and urban
distribution networks, as will be the case in China and India.

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ôc Enables suppliers to put their surplus capacity fully in operation.

ôc It gives consumers flexibility in their LNG procurement.

ôc Spot prices are affected by NYMEX.

There are many subjects to be solved. The biggest one is ³destination clause´
specified in LNG procurement contracts,-

namely, in the Asia/Pacific market, a LNG tanker departing from a LNG

terminal can not sail toward any port other than the specified in the contract.

The Indian gas market is gradually getting used to market determined gas prices.
Going forward, this process should gather further momentum, given the interplay
of various forces, such as changing dynamics of global LNG trade, firm price
trends in alternative fuels, and the anticipated decline in subsidised gas availability.
With more supply sources, gas to gas competition is likely to emerge significantly;
in that scenario, players with access to cost competitive gas would have an
advantage over others. A key driver of growth for the gas business in India would
be the establishment of a national gas transmission network, a process that is
expected to witness significant investments over the next five years.

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Spot trading of LNG, which is a yardstick of flexibility, is increasing at a rapid

rate. Transactions under short-term contracts (less than a year and inclusive of spot
trading) in 2001 recorded a tenfold increase over 1992 levels and reached a hefty
8% of total trade (IEA, ³Flexibility in Natural Gas Supply and Demand´). Above
all, conspicuous rises were noted in spot-traded LNG destined for the US. In order
to expand their LNG sales, the oil majors, among others, are no longer remaining
idle in the position of investors, interest holders and/or suppliers of LNG in the
upstream sector. They are adopting the strategy of becoming LNG buyers
themselves and are collecting the surplus capacities of many projects, while
tapping new demand. The colossal U.S. market (consuming ten times more natural
gas than Japan) can easily digest such moves. This is why the US-bound LNG spot
trading is ballooning so rapidly. This concept is becoming real in the Atlantic
market, as demonstrated by expanding spot transactions. In the Asia/Pacific market
too, introduction of a similar strategy is under consideration. LNG terminal
construction projects and commercialization of on-board gasification technology
on the U.S. West Coast, among others, all point to this concept. Expanding spot
trading is beneficial to both suppliers and consumers, since it enables the former to
put their surplus capacities fully in operation.

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Trading mechanisms guide transactions in natural gas and transportation markets.

They facilitate interactions among market participants with the objective of
achieving simultaneous clearing of natural gas and transportation markets at
minimum cost to the gas industry. Deregulation of the natural gas industry leads to
separate trading of natural gas and transportation services, which increases the
complexity of markets and imposes substantial requirements on market participants

if they are to complete all their transactions at the minimum cost. While a
vertically integrated gas company optimizes all transactions internally, participants
in a deregulated gas industry must coordinate their natural gas and transportation
transactions in an open market. The process of minimizing the total cost of natural
gas and transportation to the industry must take place across thousands of
decentralized transactions. Unless these transactions are guided by a trading model,
they can result in sub optimal allocation of resources.

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The bilateral trading model is based on decentralized bilateral transactions. The
model relies on competitive gas and transportation markets to generate efficient
prices and minimize the cost of natural gas to the end users.

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In the bilateral trading model market participants conclude all deals in bilateral
negotiations and write contracts that address all issues relevant to a transaction.

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Demand for ways to minimize of transaction costs leads to the emergence of
traders who complete transactions on behalf of other market participants. Spot
markets develop as market participants require efficient pricing of natural gas at
every moment.

Spot markets are thus developed through the decentralized action of market forces.
Competitive spot markets generate signals about the market value of natural gas
and give market participants the right incentives to complete transactions
efficiently. As a result, decentralized bilateral trading among market participants
achieves the outcome that is optimal for individual participants as well as for the
natural gas industry as a whole.

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Charges for transportation services sold in the primary transportation market are
based on the fixed and variable costs of a pipeline company per unit of distance
over which individual shipments take place. A capacity charge is set to recover
total fixed costs, while a throughput charge is used to recover the variable costs of
transporting natural gas. Transportation contracts sold in the secondary market are
priced according to the short-run marginal cost of capacity.

A competitive secondary capacity market and the availability of many different

firm and Interruptible transportation contracts enable shippers to match their needs
for natural gas with transportation services. They form a portfolio of transportation
contracts that gives them the minimum acceptable reliability of transportation at
the minimum cost. Because each shipper is able to minimize its total cost of natural
gas and transportation, the total cost of natural gas to end users is minimized.

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Natural gas is one of the burning issue from last two decades as the rising prices of
crude oil worries the developing economies and the emissions regulations are
getting very stringent for the use of the cleaner fuels for the industrial and
residential uses. Lot of research has been done in this area by several government
agencies, economists, oil and gas companies.

Currently oil and gas represent 38 percent of India¶s primary energy consumption
and by 2010, India will be the fourth largest consumer of oil and gas in the world.
NCDEX estimates the current market and this market are expected to go up by a
multiple of five times once trading gets momentum. Major user industries power
plants, fertilizer companies, and airlines sell their services to their consumers at a
fixed price, but buy feedstock at floating rates.

India¶s energy sector is finally hitting the big league. In the world, only few
commodity exchanges offer trading in energy futures ± NYMEX in the US, the
London International Petroleum Exchange, the Singapore Exchange for
Derivatives Trading and the Sydney Exchange. India¶s National Commodity
Exchange is the fifth, and the first from emerging markets and the developing
world. Multi Commodity Exchange (MCX) in India, The National Commodity and
Derivative Exchange in India (NCDEX), is a joint venture promoted by top
institutions in India, including ICICI Bank, the Life Insurance Company of India,
the National Bank of Agriculture and Rural Development, and the Indian Farmers
Fertilizers Cooperative.

But as the energy markets evolve in India and more players come in future trading
is expected to evolve further. In fact, GSPC also plans to sign up with NCDEX for
energy futures. Once the trading starts, it could pay a crucial role in stabilizing
feedstock prices along the energy supply chain. In LNG for example, trading will
allow companies to profit from the imbalance created by current contracts signed
with gas marketing companies.

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Futures: 10,000 million British thermal units (mmBtu).

Options: One NYMEX Division natural gas futures contract.

c
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Futures and Options: Dollars and cents per mmBtu, for example, $2.850 per
mmBtu.
c

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Futures and Options: Open outcry trading is conducted from 10:00 A.M. until 2:30
P.M.

After hours futures trading is conducted via the NYMEX ACCESS® internet-
based trading platform beginning at 3:15 P.M. on Mondays through Thursdays and
concluding at 9:30 A.M. the following day. On Sundays, the session begins at 7:00
P.M. All times are New York time.
c

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Futures: 72 consecutive months commencing with the next calendar month (for
example, on January 2, 2002, trading occurs in all months from February 2002
through January 2008).

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Options: 12 consecutive months, plus contracts initially listed 15, 18, 21, 24, 27,
30, 33, 36, 39, 42, 45, 48, 51, 54, 57, 60, 63, 66, 69, and 72 months out on a
March, June, September, December cycle.
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Futures and Options: $0.001 (0.1¢) per mmBtu ($10.00 per contract).
c
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Futures: $3.00 per mmBtu ($30,000 per contract) for all months. If any contract is
traded, bid, or offered at the limit for five minutes, trading is halted for five
minutes. When trading resumes, the limit is expanded by $3.00 per mmBtu in
either direction. If another halt were triggered, the market would continue to be
expanded by $3.00 per mmBtu in either direction after each successive five-minute
trading halt. There will be no maximum price fluctuation limits during any one
trading session.

Options: No price limits.

c
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Futures: Trading terminates three business days prior to the first calendar day of
the delivery month.

Options: Trading terminates at the close of business on the business day

immediately preceding the expiration of the underlying futures contract.
c
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By a clearing member to the Exchange clearinghouse not later than 5:30 P.M. or
45 minutes after the underlying futures settlement price is posted, whichever is
later, on any day up to and including the options expiration.
c
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Twenty strike prices in increments of $0.05 (5¢) per mmBtu above and below the
at-the-money strike price in all months, plus an additional 20 strike prices in
increments of $0.05 per mmBtu above the at-the-money price will be offered in the
first three nearby months, and the next 10 strike prices in increments of $0.25
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(25¢) per mmBtu above the highest and below the lowest existing strike prices in
all months for a total of at least 81 strike prices in the first three nearby months and
a total of at least 61 strike prices for four months and beyond. The at-the-money
strike price is nearest to the previous day's close of the underlying futures contract.
Strike price boundaries are adjusted according to futures price movements.
c
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Sabine Pipe Line Co.'s Henry Hub in Louisiana. Seller is responsible for the
movement of the gas through the Hub; the buyer, from the Hub. The Hub fee will
be paid by seller.
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Delivery shall take place no earlier than the first calendar day of the delivery
month and shall be completed no later than the last calendar day of the delivery
month. All deliveries shall be made at as uniform as possible an hourly and daily
rate of flow over the course of the delivery month.
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An alternate delivery procedure is available to buyers and sellers who have been
matched by the Exchange subsequent to the termination of trading in the spot
month contract. If buyer and seller agree to consummate delivery under terms
different from those prescribed in the contract specifications, they may proceed on
that basis after submitting a notice of their intention to the Exchange.
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The commercial buyer or seller may exchange a futures position for a physical
position or a swaps position of equal quantity by submitting a notice to the
Exchange. EFPs and EFSs may be used to either initiate or liquidate a futures
position.
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Pipeline specifications in effect at time of delivery.
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Any one month / all months: 12,000 net futures,but not to exceed 1,000 in the last
three days of trading in the spot month or 5,000 in any one month.
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Futures: NG
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The IPE Natural Gas futures contract enables trading, risk management, hedging
and physical delivery in a growing energy market. The contract is deliverable
unless positions are closed out prior to expiry. Physical delivery takes place within
the UK natural gas grid at the National Balancing Point (NBP). This notional point
is where BG Transco effects a balance every day between the input and withdrawal
of gas taking place on the UK National Transmission System (NTS).c
c
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ccThere is no restriction in the size of positions held.
c
 c  ,cReal-time prices are available on IPE's Energy Trading
System (ETS) screens and via major data vendors.
c
 c c.cTrading takes place in multiples of 5 lots 1 lot equals 1,000
therms per day. Because the contract is denominated in daily units a monthly
contract for June has a value of 5 lots x 30 (days) x1000 thems = 150,000 therms.
(1 therm = 100,000 Btu (British thermal units), 29.3 kilowatt hours or 25,200
kilocalories)
c
c cThe marked-to-market process, undertaken every day, enables
profit or loss to be realised ahead of delivery. So if a position is held that increases
in value, profit is credited relating to that day. Conversely if a contract is held that
decreases in value margin is called for that day.
c
÷ c4,cEnables users to separate pricing from existing long term
physical supply contracts
c
 c ,cThe London Clearing House Ltd (LCH) acts as the central
counterparty for all trades. This enables LCH to guarantee the financial
performance of every contract registered with it by its members who are clearing
members of the Exchange up to and including delivery, exercise and/or settlement.

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1 ,c*cThe Natural Gas futures contract also offers users the
opportunity to make or take delivery of natural gas. Delivery is effected at the NBP
by the transfer of rights from the Seller to LCH and from LCH to the Buyer. If a
user goes to delivery on a monthly contract and then wishes to balance, gas can be
traded on the Balance of Month (BOM) contract.
c
 cc÷4cThe IPE-NBP Natural Gas Index is calculated each trading
day. It is an unweighted rolling average of the front month settlement price
calculated at the end of each trading day. The final index is calculated at close of
trading on the date that the front month contract expires. This happens at close of
trading on the day that is two business days prior to the first delivery day of the
expiring contract. The final index represents the unweighted average of all
settlement prices of the expiring contract month ('front month').

IPE distribute the evolving index calculated on the current front month by email.
The final index for the expired front month is published to the IPE website.

 ccc÷ c c  cc

c
÷  Contracts are for physical delivery through the transfer of rights in
respect of Natural Gas at the National Balancing Point. Delivery is made equally
each day throughout the delivery period.

c >  16-18 consecutive months, 11-12 quarters and 9 seasons.

Months, quarters and seasons are listed in parallel.

4 c Trading shall cease at the close of business two business days
prior to the first calendar day of the delivery month, quarter or season.

 c , ICE Clear Europe Limited acts as central counterparty to all
trades thereby guaranteeing the financial performance of IPE contracts registered
in the name of its Members up to and including delivery, exercise and/or
settlement.

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cå  08:00 - 17:00, Local London Time (LLT), Monday - Friday.

 c.cMultiples of 5 lots of 1,000 therms per lot of natural gas per day.

cc
 1 lot equals 1,000 therms of natural gas per day (1 therm = 29.3
kilowatt hours)

= The contract price is in Sterling and in pence per therm

<c c4 0.01 pence per therm

<4c c4 There are no limits

c  The weighted average price of trades during a fifteen minute
settlement period from 16:00:00, London time.

,c<  All open contracts are marked-to-market daily.

c  There are no position limits.

c<* Electronic futures, Exchange for physical (EFP), Exchange for

swap (EFS) and Block Trades are available for this contract.
c
1 ,>c Matching Acquiring and Disposing Trade Nominatios
(buyer from ICEU, seller to ICEU) are input by buyer and seller to National Grid
Transco via AT Link before 18:30 on the business day prior to delivery. Delivery
takes place in kilowatt-hours (29.3071 kilowatt hours per therm).

Source : www.theice.com

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Most of the major natural gas pipelines are regulated interstate pipelines. These
pipelines are limited to providing transportation services, including storage. Thus,
pipelines move gas at government-regulated rates on behalf of buyers and sellers,
but do not participate in the buying and selling of natural gas.

The US natural gas marketplace has a highly competitive spot market where
brokers and others buy and sell natural gas. Figure shows some of the points where
natural gas for physical delivery is actively traded in the continental United States.
These points are market centers where brokers actively trade and prices are
established. In addition to these market centers, natural gas is actively traded at
many other locations, including segments of individual pipelines and locations
where pipelines interconnect with local distribution companies.

Source : Energy Information Administration

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Sumans Hub PGT Center Golden Gate Center

Western Center California Energy Center Mid-Continent Center

Blanco Center Waha Hub Mid-Continent Center

Chicago Center Perryvile Center Carthage Hub

Katy Hub Houston Hub Mass Bluff Hub

Aqua Duke Hub Egan Hub Henry Hub

Iroquois Center Elisburg-Leidy Center New York Center

CNG/Sabine Center

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The most important market center in the United States is the Henry Hub, located in
southern Louisiana, because it is the most active and highest-volume trading point.
The Henry Hub is interconnected with 16 different intra- and interstate pipelines
and, thus, effectively interconnects to all producing and consuming regions
throughout North America. Because of its central location and its high degree of
interconnectedness, the Henry Hub is used as the delivery point for the New York
Mercantile Exchange¶s (NYMEX) natural gas futures contract and a pricing
reference point for virtually the entire North American natural gas market.

Market participants buy and sell natural gas on a ³spot´ basis every day at the
trading points, as well as at dozens of other points. Spot market transactions are
normally conducted over the internet or by telephone, with the buyer agreeing to
pay a negotiated price for the natural gas to be delivered by the seller at a specified
delivery point. Natural gas spot prices reflect daily supply and demand balances
and can be volatile.

In addition to daily spot transactions, monthly spot transactions are often entered
during ³bid week,´ the last five business days of a month. During bid week, buyers
and sellers arrange for the purchase and sale of physical natural gas to be delivered
throughout the coming month, including making delivery arrangements with
pipelines.

Many customers purchase natural gas under longer-term contracts that provide for
delivery of gas for a specified period of time. The length of time can vary.
Frequently the prices in longer-term contracts are not fixed, but are instead indexed
to prices that are regularly published in the trade press. A number of trade
publications publish index prices based on their surveys of natural gas buyers and
sellers to determine the prices they pay (or receive) for natural gas (at market
locations such as those shown in above figure) in daily or monthly transactions.

The most active and publicized market center in North America, the Henry Hub, is
also located in the Southwest region. The Henry Hub has an extensive receipt and
delivery capability. More than 180 customers regularly conduct business at the
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Henry Hub through 14 interconnecting pipeline systems and a high-deliverability
salt storage cavern facility. The Henry Hub is accessible to major producers from
both onshore and offshore Louisiana production sites. Price and other relevant
information on the Henry Hub are readily available via electronic and printed
media.

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As on August 2003 flow ±About 450 Mdth/d150

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The Henry Hub is also the delivery point for New York Mercantile Exchange
(NYMEX) natural gas futures contracts. The ready availability of information on
the price of gas and supporting services helps customers trade gas efficiently at
prices that reflect market demand and supply. In addition, many different types of
customers, producers, major industrial customers, and local distribution companies
(LDCs) Cuse the Henry Hub. Because of this ready availability of information, it is
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relatively easy for these customers to agree on a price to complete a deal, which
helps explain the center¶s large daily volume of transactions.

Natural gas accounts for almost a quarter of US energy consumption, and the
NYMEX Division natural gas futures contract is widely used as a national
benchmark price. The futures contract trades in units of 10,000 million mmBtu.
The price is based on delivery at the Henry Hub in Louisiana, the nexus of 16
intrastate and interstate natural gas pipeline systems that draw supply from the
region¶s prolific gas deposits. The pipelines serve markets throughout the U. S.
East Coast, the Gulf Coast, the Midwest, and up to the Canadian border. An
options contract and calendar spread options contracts provide additional risk
management opportunities.

Two financially-settled natural gas contracts (HH and HP) are available for trading
on the CME Globex system. The HH contract settles on the same date as the
physically delivered Natural Gas contract and HP is a penultimate contract. Both
contracts are listed for 72 months.

The spread between natural gas futures and electricity futures ± the spark spread ±
can be used to manage price risk in the power markets.

Because of the volatility of natural gas prices, a vigorous basis market has
developed in the pricing relationships between Henry Hub and other important
natural gas market centers in the continental U S and Canada. The Exchange
makes available for trading a series of basis swaps futures contracts that are quoted
as price differentials between appx. 30 natural gas pricing points and Henry Hub.
The basis contracts trade in units of 2500 mmBtu on the NYMEX ClearPort
trading platform. Transactions can also be consummated off-Exchange and
submitted to the exchange for clearing via the NYMEX ClearPort clearing
websites as an exchange of futures for physicals or exchange of futures for swaps
transaction.
The NYMEX MINY natural gas futures contract, designed for investment
portfolios, is the equivalent of 2500 mmBtu of natural gas, 25% of the size of a
standard futures contract. The contract is available for trading on the CME Globex
ETP (Electronic Trading Platform) and clears through the NYMEX clearinghouse.cc
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Gujarat is one of the leader in Oil and Gas sector with India¶s first two LNG
terminals a common carrier gas pipeline, power and city distribution gas projects.

Gujarat governs a command over the on shore product ion of the crude in India by
contributing almost 54%of the total production. The government of Gujarat
proposes Gujarat as energy hub, since it has unique feature of having State Wise
Gas Grid and Multi Gas Supplier. 750 km pipeline network is already operational
and another 650 km pipeline is under implementation. In the next two to three
years, the Gas Grid is expected to reach all the 25 districts of Gujarat and cater to
the requirements of industrial, commercial and domestic sectors. Refineries in
Gujarat are accountable for 46%of refining capacity of the country. The private
and public sector enterprises like Adani, British Gas along with GAIL, GSPC,
BPCL are involved in gas distribution. Hazira and Palej are the only two LNG
terminals in India, mentioning the potential of Gujarat to be a state who can lead
India in the development and growth in oil and gas sector. Gujarat has taken a
pioneering role in utilizing Natural Gas for power generation, fertilizer production,
manufacturing and transportation. With an increasing presence of upstream
multinationals, downstream giants and midstream companies in Gujarat, the state
has emerged as the Petro-Capital of India and leading the country towards energy
sufficiency and into an exciting hydrocarbon economy. With an upcoming Special
Economic Zone dedicated to Oil and Gas sector, an unprecedented growth is
envisaged.

According to above facts we can say that Gujrat has a huge potential to be a Gas
trading hub in India in coming years. As Supreme court ruling said that gas would
not be regulated at the state, this would also give support to Gujrat to expand its
gas business. As it has approximately all of the infrastructure to be a Gas trading
hub and also it is expanding its share in the natural gas sector. So we can see
Gujrat as a gas trading hub in future.c

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Figure shows schematically some of the types of natural gas transactions that take
place as gas makes its way from the fields where it is produced to end users¶
burner tips. The natural gas industry in the United States is highly competitive,
with literally thousands of producers. Some producers have the ability to market
their natural gas and may sell it directly to local distribution companies or to large
industrial buyers of natural gas. (Some of these large industrial buyers are
³onsystem´ end users, meaning that they receive physical natural gas deliveries
from a local distribution company. Others are ³off-system end users,´ meaning
they are directly connected to an interstate pipeline.) Other producers sell their gas
to marketers who have the ability to aggregate natural gas into quantities that fit
the needs of different types of buyers and to transport gas to their buyers.
Marketers may be large or small and sell to local distribution companies or to
commercial or industrial customers connected directly to pipelines or served by
local distribution companies.

Most residential and commercial customers purchase natural gas from a local
distribution company. In contrast, many industrial customers have the option to
purchase natural gas from a marketer or producer instead of from the distribution
company.

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There are many different types of buyers and sellers who are motivated to buy and
sell gas under different types of commercial arrangements. As a result, gas is sold
on a spot market basis, under longer-term contracts with fixed pricing or terms that
track market prices, and under contracts with other types of pricing provisions.
Marketers are able to meet customers¶ differing needs by bringing together a large
number of buyers and sellers. In addition, marketers and other buyers and sellers of
natural gas are able to use financial instruments traded on exchanges to hedge the
risks associated with price volatility.c

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Natural gas provides 9 percent of the marketable energy consumed in the India. Oil
products and coal are the other two major sources of energy. Natural gas is a
valued source of energy because it is versatile and burns cleanly. As a result,
natural gas use is commonplace in applications including cooking, residential and
commercial heating, industrial process feed stocks, and electric generation.

When we talk about the globally natural gas physical delivery from the extraction
point to the end users there are seven processes involved in the natural gas physical
flow from producer to end consumer, i.e.

ôc Explorations & Production

ôc Processing
ôc Storage
ôc Transportation
ôc LNG Terminals
ôc Local Distribution Companies
ôc End Users (Industrial, Residential and Commercial)

From the exploration point where the gas extracts from the wellhead, it passes out
from the various processes. This is called value chain of natural gas. Above figure
is a schematic illustration of the physical structure of the natural gas industry and
illustrates the principal activities required to bring gas to consumers. The primary
activities are:

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Exploration and production include finding and producing natural gas from natural
gas fields or associated gas that is produced with crude oil. In exploration we
develop the wellhead and in production we starts producing gas out of the field.

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Natural gas processing removes impurities and the higher valued products and
prepares a dry gas stream that meets industry standards for transportation in high-
pressure pipelines.c

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Natural gas is transported in high-pressure pipelines from producing areas to
industrial end users, storage areas, and local distribution companies.cc
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The natural gas production and delivery system is not designed to produce and
transport the full amount of natural gas consumers want during periods of peak
demand. In order to meet peak demand, large customers and distribution
companies put gas into underground storage, mostly near final consumers. The
stored gas is withdrawn to meet consumers¶ needs during times of peak demand,
such as a cold winter day in United States.

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Local distribution companies own and operate the network of pipes that carry
natural gas from high-pressure trunk lines to final consumers. These consumers
include residential, commercial, and industrial customers.

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The United States currently imports about three percent of its natural gas from
overseas producers in the form of liquefied natural gas. LNG can also be stored
and used to meet peak demand.
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ôc Exploration & Development
ôc Hydrocarbon Production
ôc Shipping
ôc Refining & Blending
ôc Storage
ôc Distribution
ôc Market

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In India Natural gas involves the following processes to reach till end consumer

ôc Gas Field
ôc Processing Units
ôc Terminal
ôc Pipelines
ôc End Consumer

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Gas field is the field from where gas extracts from wellhead. From there we gets
the hydrocarbons in the form of Ethane, Methane, Propane & Butane. After
extracting the gas, it send to the processing units.

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In processing units work done to meet market standards, requirement quality and
market specifications. In this they used to remove sand, sludge, sulphur and all the
impurities which comes from the wellhead with the extracted gas.

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The natural gas received from various sources contains impurities , such as ,
dirt, hydrocarbon condensate , water , solid particles, sulphur etc. . These
impurities need to be removed otherwise they will affect the health of the
pipeline and that of the associated equipments. Besides, the efficiency of
operation of the pipeline will also get adversely affected . In order to avoid
the above mentioned problems , facilities are installed at the receiving
terminals of GAIL to remove these impurities before the gas is introduced
into the pipeline system of the consumers.

During the transportation of the gas through the pipeline , the gas may get
cooled due to low sub-soil temperature which may sometimes result in the
formation of hydrocarbon condensate and water . Moreover, the pipeline
system may contain dirt , dust , rust , mill scale etc. which keep on getting
transported with the gas . Since contractually the gas delivered to the
consumer should be delivered at a particular pressure and temperature and
must also be devoid of all impurities like dirt , dust and condensate ,
facilities have been created at gas receiving terminals to treat the gas
before it is finally delivered to the consumer .
A typical gas terminal has the following facilities :
01)c Pig Launcher & Receiver
02)c Scrubber & Filter Separators
03)c Condensate Removal and Handling System
04)c Gas Heating System
05)c Pressure Regulation and Control System
06)c Measurement System
07)c Flow Control Devices
08)c Gas Analyser Unit
Depending on the quality of the gas received from the producer and the
contractual requirements of the consumer , necessary facilities in different
combinations are installed at the despatch and receiving terminals .
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Pipelines plays an important role in the whole delivery structure in India because
most of the transportation of gas in India has been done through the pipelines. As
we know that GAIL owns and operates a Natural Gas network of high pressure
trunk pipelines which are capable of carrying 148 MMSCMD of natural gas, about
7000 km spread out. It supplies about 80 million cubic meters of natural gas per
day to power plants as fuel, to gas based fertilizer plants as feedstock and other 500
small, medium and large industries. Gail has a share of 79% in the transmission
business and about 70% in the gas marketing business in India.

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Whoever uses the gas as a raw material is called end user of gas. As power
generation industries uses the gas as a raw material, fertilizer industries, sponge
iron, residential users and other user who use the gas is the end consumer.

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The geographical and political situations of the natural gas producing countries
also have an effect on the trading markets. As we can take the example of Gulf
countries like Iraq, Kuwait, Iran etc. we have seen that the political unstability in
these countries have an direct effect on the prices of natural gas throughout the
world.
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Dollar is the commonly accepted currency throughout the world. Majority of the
transactions throughout the world are done in terms of dollars as a payment option.
So the fluctuation in the exchange rate of dollar have an direct effect on the gas
markets.
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As in the case of crude inventory data plays an important role in the price
fluctuation of crude, same is the case with US natural gas inventory data. So we
can say that US natural gas inventory data has also an effect on the gas trading
markets.
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Nowadays emerging economies like India, China are paying more emphasis
towards greenfuels in their industries. So as a result the demand of natural gas is
increasing day by day. It is well known that they are not one of the prime producers
of natural gas hence to a large extent they depend on import. This emerging
demand effects the global gas market directly.
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As we all know that under the NELP (New Exploration and Licensing Policy)
Government of India has allowed 100% Foreign Direct Investment in gas market in

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More and more emphasis is now being paid on producing power through
renewable sources of energy. More and more gas based power plants are coming
which requires a significant quantity of gas. Same as in the case of fertilizer
sector, gas is being used as a feedstock. We know that nearly 70% of the total
gas demand is coming out of these two sectors in India. As a result they effect
the gas markets to a large extent.c
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There are several modes of natural gas like LNG,CNG, PNG, etc. which are
discussed as follows:

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The predominance of Natural Gas (as CNG and PNG) as a fuel for
city energy purposes internationally is primarily due to three reasons. Firstly,
Natural Gas is a more economical alternative. Comparing Natural Gas with fuels
against which it will be competing in various customer segments within cities
namely FO/LSHS for industrial segment, Petrol/Diesel for transport and LPG for
commercial and domestic segments, this can be clearly bought out.

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Table 2

In the transport segment the fuels are compared based on running cost; CNG is
almost three times as economical as the traditional fuels. For the Industrial,

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commercial and domestic segments the fuels are compared on the basis of total
expenditure incurred to create one million Kilocalories of energy.

For industrial customers Natural Gas offers a 20% cost benefit in energy terms
while for the domestic segment Piped Natural Gas (PNG) presents a savings
opportunity of almost 17% on the monthly bill. Secondly, Natural Gas is a 'clean'
fuel. When Natural Gas burns it creates lesser pollutants as compared to traditional
fossil fuels.

The fuel produces lower amount of CO2 but the real difference lies in the amount
of NO2, SO2 and particulates, which are almost one-tenth the amount created by
other fuels. And finally, natural gas as a fuel is extremely efficient.

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When the entire cycle of producing, processing, transporting and using energy is
considered, natural gas is delivered to the consumer with a "total energy
efficiency" of about 90 percent, compared with about 27 percent for electricity.
The city of Delhi, where plying of CNG fitted Buses and other commercial

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polluting diesel & petrol vehicles have made a discernible difference to the city¶s
pollution levels in terms of Sox & NOx levels and SPM.

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Pounds of Air pollutants produced per Billion BTU of energy)

Source: Energy Information administration


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Table 4

In order of environment friendliness, various Auto fuels may be ranked as follows:

ôc Fuel Cell
ôc CNG/LPG
ôc Ethanol

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 ôc Ethanol mixed Petrol
ôc Unleaded Petrol
ôc Petrol
ôc Low Sulphur diesel
ôc Diesel.
ôc Electricity and Solar energy will also be more environment friendly, though
not in vogue presently.
Compressed Natural Gas, therefore, is the best available environment friendly auto
fuel in India, for Western India in particular (and hopefully in Eastern India in near
future) with the availability of natural gas & the long coastline permitting the
import of LNG.

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ôc It is the most economical & environment friendly fuel available. Though the
initial cost of conversion kit may seem to be high, the same can be recovered
in less than 2 years because of low operating cost.
ôc It is the most economical & environment friendly fuel available. Though the
initial cost of conversion kit may seem to be high, the same can be recovered
in less than 2 years because of low operating cost.
ôc CNG is environment friendly, No cancer causing particulates, less carbon
monoxide & hydro carbon emissions, less ground level ozone contamination
& Green House gases effects. CNG is much safer than Gasoline, diesel fuels
or LPG.
ôc CNG reduces engine wear, more than doubling engine life because CNG
burns clean & leaves no carbon deposits.

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 ôc CNG offers lower maintenance cost. It is a dry gaseous fuel & does not
dilute the lubricating oil, thus saving on oil filters & oil changing. Intervals
between tune ups for CNG vehicles are stated to be more than 70,000 kms.
ôc If CNG is used, there is complete freedom from adulteration by solvents,
kerosene or any other harmful substance.
ôc As far as safety is concerned, CNG is considered to have advantage over
liquid fuels. Refueling is through a sealed fail-safe system so no vapours are
released to atmosphere. CNG storage cylinders are considerably stronger
and usually better sited on the vehicle than mild steel liquid fuel tanks. In the
unlikely event of a CNG cylinder leaking after an accident, the gas would
rise and diffuse rapidly whereas the liquid fuels would spread over a wide
area, with a high risk of ignition, before eventually evaporating to form a
dispersing heavy vapour. The temperature at which methane ignites
spontaneously in air and continues to burn is over 650 degrees Celsius
compared to 220 degrees Celsius for gasoline. In fact, the LPG fuelled
vehicles have a relatively lower safety, as the specific gravity of LPG is
much higher than CNG and in case of an accident, LPG vapours remain
stranded and a potential risk of a significant blast. Correspondingly, a CNG
explosion would require much larger volume of storage. Methane in CNG
has a wider flammability range (0.5 to 8%), but is less likely to ignite at very
weak mixtures.
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ôc Shorter distance covered before refilling is required ± This problem may be

partially addressed with a higher coverage of CNG refilling stations,
particularly on a contiguous basis.

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 ôc Higher re-fueling time ± This is being addressed to through continuous
technological innovations and having more number of online mother
stations, more so in the bus depots so that larger vehicles (like, buses) are
catered to separately to reduce the overall waiting time.

ôc Loss of engine power- Power losses in dual fuelled CNG vehicles can be in
the range of 5 to 30%. These losses are reduced when the vehicle is
optimized to run on CNG. If acceleration times are not important for the
vehicle¶s normal duty, power losses are compensated by an improvement in
engine efficiency of up to 15% due mainly due to the efficient combustion of
the fuel/ air mixture.

ôc Loss of space & additional weight ± As the CNG compressor are made from
high quality steel and is of significant thickness, positioning of another
container in duel-fuelled vehicles is an issue.

ôc High conversion cost ± The conversion cost, when CNG is introduced in a

city, is high as the economics of manufacturing kit is low, due to lesser
number ordered, imports & presence of less OEMs¶. However, as the
conversion number increases, the unit cost of conversion is bound to come
down with vehicle manufacturers in a position to offer factor-fitted kits at
significantly lower costs.

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The ancient peoples of Greece, Persia, and India discovered

natural gas many centuries ago. About 2,500 years ago, the Chinese recognized
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that natural gas could be put to work. The Chinese piped the gas from shallow
wells and burned it under large pans to evaporate sea water for salt.

Natural gas was first used in America to illuminate the streets of Baltimore in
1816. Soon after, in 1821, William Hart dug the first successful American natural
gas well in Fredonia, New York. His well was 27 feet deep, quite shallow
compared to today's wells natural gas accounts for about a quarter of the energy.

GAIL (India) Limited, is India's flagship Natural Gas company, integrating all
aspects of the Natural Gas value chain (including Exploration & Production,
Processing, Transmission, Distribution and Marketing) and its related services. In a
rapidly changing scenario, they are spearheading the move to a new era of clean
fuel industrialization, creating a quadrilateral of green energy corridors that
connect major consumption centers in India with major gas fields, LNG terminals
and other cross border gas sourcing points.

The use of piped natural gas (PNG) for domestic, commercial and industrial
purpose in cities is gaining increased importance as an alternative fuel. PNG is
being used internationally with proven success. PNG is a mixture of hydrocarbon
gases and vapours consisting of principally Methane in gaseous form. The PNG
network consists of receiving natural gas from suppliers at City Gate Stations
(CGS), Steel Mains. Pressure Regulating installations (PRI), Poly Ethylene (PE)
Mains and Supply System to end users. Safety in PNG distribution is important in
view of the highly inflammable nature of the gas and densely populated areas in
which the network is installed.

This standard aims to ensure safe design, construction, operation & maintenance of
PNG distribution to various customers viz. Domestic, Commercial and Industrial
so as to provide a level of safety and protection of life and property. This standard

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industrial users

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±c   Natural Gas is being used predominantly as a versatile fuel for

domestic and commercial applications such as cooking, water heating, space
heating and air conditioning.

±c 1 c  , Natural Gas is one of the cleanest burning fossil
fuels. Its combustion results in virtually no atmospheric emissions of sulphur
dioxide (SO), and far lower emissions of carbon monoxide (CO), reactive
hydrocarbons and carbon dioxide, than combustion of other fossil fuels. In
fact, when Natural Gas burns completely, it gives out carbon dioxide and
water vapour, the same components that human beings exhale while
breathing.
±c  c, PNG offers the convenience of ensuring continuous
and adequate supply at all times, without any problems of storing in
cylinders.
±c 1cccThe domestic consumers of LPG are required to order a
cylinder refill periodically and wait for its delivery. Switching to PNG
renders this entire exercise unnecessary. PNG also eliminates the tedious
routine of checking LPG cylinders for any suspected leakage, or it being
underweight, at the time of delivery. Moreover, the user is spared the
inconvenience of connecting and disconnecting the LPG cylinder when out
of gas. Space occupied by LPG cylinders is also saved.
±c  Currently, PNG is priced 10% lower than comparable fuels for
domestic and commercial consumption.

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 ±c  The combustible mixture of Natural Gas and air does not ignite if the
mixture is leaner than 5% and richer than 15% of the fuel:air ratio required
for ignition. This narrow inflammability range puts PNG amongst the safest
fuels. Natural Gas is lighter than air, therefore, in case of a leak, it rises and
disperses into air, given adequate ventilation.
A large quantity of LPG is stored in liquefied form in a cylinder. With a limited
quantity of Natural Gas at low-pressure i.e. 21 millibar. On leakage, LPG expands
250 times, which is not the case with PNG. Supply of PNG can be switched off
through appliance valve (inside the kitchen) and isolation valve (outside kitchen
premises), which fully cuts off the supply. With slightly higher calorific value of
PNG compared to LPG, former is more economical even at the same price.

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has been converted temporarily to liquid form for ease of storage or transport.
Liquefied natural gas takes up about 1/600th the volume of natural gas in the
gaseous state. It is odorless, colorless, non-toxic and non-corrosive.

The liquefaction process involves removal of certain components, such as dust,

acid gases, helium, water, and heavy hydrocarbons, which could cause difficulty
downstream. The natural gas is then condensed into a liquid at close to
atmospheric pressure (Maximum Transport Pressure set around 25 kPa (3.6 psi) by
cooling it to approximately í163 °C (í260 °F).

The reduction in volume makes it much more cost-efficient to transport over long
distances where pipelines do not exist. Where moving natural gas by pipelines is
not possible or economical, it can be transported by specially designed cryogenic
sea vessels (LNG carriers) or cryogenic road tankers.
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LNG is principally used for transporting natural gas to markets, where it is
regasified and distributed as pipeline natural gas. LNG offers an energy density
comparable to petrol and diesel fuels and produces less pollution, but its relatively
high cost of production and the need to store it in expensive cryogenic tanks have
prevented its widespread use in commercial applications. It can be used in natural
gas vehicles, although it is more common to design vehicles to use compressed
natural gas. The natural gas fed into the LNG plant will be treated to remove water,
hydrogen sulfide, carbon dioxide and other components that will freeze under the
low temperatures needed for storage or be destructive to the liquefaction facility.
LNG typically contains more than 90% methane. It also contains small amounts of
ethane, propane, and butane. The purification process can be designed to give
almost100% methane.

Currently in India there are 2 lng terminals one at DHAEJ with capacity of 5
mta/965 bcf which is further in expansion to 10mta. Second is in Hazira jointly
hold by SHELL AND TOTAL with capacity of 2.5mta which is also to be
expanded to 5 mta by 2012. As the demand of natural gas is rising by power an
fertilizer sector three more terminals are planned to be a) DHABOL with capacity
of 5mta, one at kochi with capacity of 2.5mta with planed up to 5mta. And it is
been seen that in recent years seeing the demand of natural gas the various 3
pipeline projects to be come with Iran, Myanmar, and khazakhastan.

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Natural gas is a versatile source of energy, which can be used by different actors.
Heating and electricity generation have been the main traditional uses. Increasing
environmental concerns may lead to a greater use of natural gas in transportation.
The fallowing diagram shows the uses of natural gas:


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GobacAgreements

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Residential applications are the most commonly known use of natural gas. It can
be used for cooking, washing and drying, water warming, heating and air
conditioning. Domestic appliances are increasingly improved in order to use

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natural gas more economically and safely. Operating costs of natural gas
equipment are generally lower than those of other energy sources.

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Electric utilities and independent power producers are increasingly using natural
gas to provide energy for their power plants. In general, gas fuelled power plants
have lower capital costs, are built faster, work more efficiently and emit less
pollution than other fossil fuel power plants. Technological improvements in
design, efficiency and operation of combined cycle gas turbines and co-generation
processes are favouring the use of natural gas in power generation. A combined-
cycle power plant uses waste heat to produce more electricity, while natural gas
co-generation, also called combined heat and power, produces power and heat that
is useful for industry as well as commercial users. This cogeneration reduces
pollution emission considerably.

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NGVs are natural gas powered vehicles. Natural gas can be used as a motor vehicle
fuel in two ways: as compressed natural gas (CNG), which is the most common
form, and as liquefied natural gas. Natural gas vehicles fleet accounts for about one
and a half million vehicles worldwide (according to the International Natural Gas
Vehicles Association). Concerns about air quality in most parts of the world are
increasing the interest in using natural gas as a fuel for vehicles. Cars using natural
gas are estimated to emit 20% less greenhouse gases than gasoline or diesel cars.
These vehicles are not a new technology since they have been used since the
1930s. In many countries NGVs are introduced to replace buses, taxis and other
public vehicle fleets. Natural gas in vehicles is inexpensive and convenient.

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A fuel cell is an electrochemical device that combines hydrogen fuel and oxygen
from the air to produce electricity, heat and water. Fuel cells operate without
combustion, so they are virtually pollution free. Since the fuel is converted directly
to electricity, a fuel cell can operate at much higher efficiencies than internal
combustion engines, extracting more electricity from the same amount of fuel. The
fuel cell itself has no moving parts, making it a quiet and reliable source of power.
Natural gas is one of the multiple fuels on which fuel cells can operate.

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ccccccccccccccccccccccccccccccLNG Sales and Purchase Agreements were developed from

pipelines gas contracts and share many features in common. However, the complex
nature of LNG supply chains has led to the development of specific marketing and
contractual agreements.

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cccccccccccccccccccccccccccccLNG sales and purchase agreements (SPAs) were developed

from pipeline gas contracts in the early days of the LNG industry. At that time,
both seller and buyers needed long-term commitments to provide security to
provide to raise finance, often running into several billion dollars, for their
respective facilities. Alternative sources of LNG were unlikely to be available to
buyers if supplies were disrupted and there were few alternative markets available
to the sellers if the long-term buyers were unable to receive the LNG. As a result
the terms and conditions in LNG SPAs include severe penalties for a failure to
perform including, for example, obligations for the buyer to pay for an agreed
volume of LNG even if it is unable to take all the volume(take or pay).

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cOne of the main challenges for developers of new LNG production capacity is to
secure markets for the planned output. The buyers and sellers often adopt the
approach of a series of arrangements that increases the level of commitment
between the parties and define the main terms and conditions under which the trade
will be carried out. These agreements will usually lead to the SPA, which fully
commits the parties to the supply and purchase of the LNG and is the basis for both

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 sides to make major investment in facilities to produce, transport, receive and
consume the LNG. An agreement is as follows:

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Typically a letter from the buyers to the project sponsors indicating their interest
in the project. At this stage neither side will have made an irrevocable commitment
to invest in the project.

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An agreement signed by both sides outlining the plans for the project and
indicating the intention to negotiate , in good faith, an SPA.c
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An agreement setting most of the main terms for the supply and purchase of LNG.
At this stage the buyers and sellers would normally make a commitment to enter
into a full SPA provided specified conditions precedent are met and certain
approvals are received.

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This sets out the full terms and conditions for the supply and receipt of the LNG.
With its signature both sides are committed to their part of the project chain.

2.3.4) Contractual Agreement

The key terms in a typical LNG SPA include:

ôc The Length of term of supply

ôc The amount to be delivered annually and flexibility to increase or decrease
volumes.
ôc Price

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ôc Responsibility for marine transportation.
ôc Scheduling Procedures.
ôc The heating value and main components of the LNG.
ôc Measuring and testing.
ôc Force majeure.
ôc Destination.

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cccccccccccccccccccccccccccccccccThe volume of LNG the buyer agrees to take and the seller
agrees to supply is referred to as the Annual Contract Quantity (ACQ). The SPA
will specify the ACQ during the build up phase and when the project is at full
production. The build up period can extend from a few months to 5 To 6 years and
usually is critical for both the parties.

The seller will want to maximize early cash flows by having the build up
determined by the production capacity of the LNG plant. This is normally a period
of only few months at most since, once an LNG train is commissioned , full
production capacity can be achieved quickly. The buyers will often want a slower
build up to allow them to develop their markets. As a result, the rate of build up is
often a compromise between the different needs of the parties to the SPA. The
plateau volumes are usually the same each year and are generally fairly evenly
paced over the year, although there may be some small seasonal variations to take
into account the needs of the buyer.

The SPA normally gives the buyer a limited scope to reduce volumes during each
year ± referred to as Downward Quantity Tolerance (DQT). This has typically been
less than 10% of the ACQ. In addition, the buyer usually has the option to increase

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volumes by a small amount each year if the seller has the capacity to supply
additional LNG. The ACQ minus the DQT sets

the volume of LNG that the buyer has to pay for weather or not it is taken- the so
called take-or-pay level (TOP). The buyer will only be released from its TOP
obligation to the extent that the failure to take is for reasons of force majeure or the
seller has not been able to supply LNG.

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ccccccccccccccccccccccccccccccccccccThe critical issue for buyers and sellers is whether the sales
should be on an FOB(free on board) basis, with the buyer being responsible for
transportation, or an ex-ship basis, with the sellers providing the shipping. Ex-ship
sales which are essentially the same as CIF sales, formally dominated the LNG
business, especially in Asia, but there is currently a trend for buyers to prefer FOB
purchases.

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cccccccccccccccccccccccccccccccccccBoth the sellers and the buyers will want to ensure optimum
use of their facilities. The scheduling of the ships will be a critical factor in
achieving this objective. The SPA normally defines the procedures for developing
the Annual Delivery Programme (ADP) for the project. As the name suggests, this
is agreed annually and provides for the number of cargoes to be delivered, the
ships on which they are able to be transported, and the dates of loading and
unloading.

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ccccccccccccccccccccccccccccccccccccccThe SPA sets a range for the heating value of LNG and its
main components. The SPA will define the rights of the buyer to reject of the cargoc
and the penalties to be paidcby the seller if the LNG is outside these ranges. Buyers
in Asia generally prefer LNG with relatively high calorific value, whereas in the
Atlantic basin needs LNG with lower calorific value to meet the needs of their
customer.

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cccccccccccccccccccccccccccccccccccccThe volume of LNG loaded onto the ship (for an FOB sale)
or discharged from the ship (for an ex-ship sale) is measured by gauges on the
ship¶s tanks. The quality, including the heat content, is determined by shore-based
equipment at the loading or un-loading terminal.

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cccccccccccccccccccccccForce majeure is defined as any circumstance that is beyond the

reasonable control of the party affected which prevents or hinders due to
performance of obligations under the contract and which cannot be overcome by
due diligence.

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ccccccccccccccccccccccccccccMost LNG contracts provide little or no flexibility for the LNG to

be delivered to a destination other than the buyer¶s own receiving terminal or
terminals, even in cases where the sale is on FOB basis and the buyer control the
ships. Destination restrictions are increasingly unacceptable to the buyers. Who
want the flexibility to sell cargoes at alternative markets to help manage variations

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 in their own market demand and to take advantage of price arbitrage opportunities,
especially in the Atlantic basin.

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In the long-term contract, the natural gas market would call for
more flexible and diverse solutions and diverse solutions. For companies this
implies that business models will have to be more complex and diverse . For
countries it implies that there will not be one liberalization model to suit all
circumstances but each newly reforming market will have to be develop its own
approach.

ADVANTAGES OF LONG TERM CONTRACTS:

ôc Fixed price, till the contract lasts.

ôc Future estimations of demand and supply done.
ôc Integration of modules
ôc Less risk
ôc With limited volumes of flexibility, it supports the initial development of the LNG
business.

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The final sale and purchase agreement India signed with Iran for 5 million tons
per year of LNG ± equivalent to 19 million cubic meters (667 million cubic feet)
per day of gas ± gives resale rights to the buyers with profit sharing to the sellers
on average volumes of 400,000 tons/year.c

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Qatari sources confirmed that additional supply beyond contracted levels is
available for India, which is also seeking to limit the large price increases it faces
at the end of 2009 end of five years of fixed pricing. c

The Pricing formula of India¶s contract with Iran is P ± FOB = (0.065 ; dated
Brent) + $1.20, where P ± FOB is the fob price in dollars per million Btu, dated
Brent is the simple average of the per barrel price over the 12 months prior to
loading, and the floor and ceiling for Brent are $10 and $31 per barrel respectively.
A ceiling price for LNG of $2.90 per million Btu will apply for two years. India
can divert to other markets 8% of the total cumulative quantity over the 25 years of
the contract, with any positive difference between the implied f.o.b price at which
the LNG is sold and the contract price to be shared equally with Iran. Take or pay
terms apply to 95% of contracted volumes. The price review is in seven years and
thereafter every five years. The first 5 million tons/yr of LNG is to go 40% to
GAIL, 35% to Indian oil corporation(IOC) and 25% to Bharat Petroleum. An
additional 2.5 million tons/yr that¶s still under negotiation would go to Oil and
Natural Gas Corporation (ONGC) and Hindustan Petroleum.

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Short term contracts provide more flexible contracts. It will allow the seller to
meet the changing needs of consumers. Short ± term sales of LNG can be made on
the basis of a single ± cargo or a number of cargoes over a limited period of time.
Whatever the nature of the arrangements, prices are invariably set according to the
market in which they are sold. The price will either be fixed when cargo is loaded
or it may be linked to an escalator). In the case of the US, the price will be netted
back from Henry Hub prices but it can be fixed at the time of loading or the time
the sale is agreed using the futures market. The Atlantic basin provides the LNG

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 seller or trader with two reasonably proximate markets where the natural gas prices
are set in different ways .The main factors needed for the expansion of the short-
term trading of LNG are:

ôc Surplus supply
ôc Market terminal and receiving terminal capacity.
ôc Uncommitted ships.
ôc Flexible contracts

The main constraints on short ± term trading are:

ôc Uncommitted Ships.
ôc Flexibility Contracts.

Short-term trades may follow a variety of pricing structures, including indexation

to crude oil or oil product prices, or netback from pipeline gas prices. The main
factors needed for the expansion of short ± term trading are surplus LNG supply,
market demand and receiving capacity, uncommitted ships, and flexible
contracts.Overall, all the factors required for short ± term LNG trading to expand
will be in place in the medium term, so an increase from the 2001 level of just
under 6% of total trade can be expected over the medium to long-term. However,
buyers and sellers still face high capital investment costs to develop facilities to
produce, transport, re-gasify and consume natural gas. Consequently, it is unlikely
that short term trading will dominate the LNG business in a way it does in the oil
industry, rather short-term markets are likely to grow slowly within the context of
the existing long-term contract framework.

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1.c BP Statistics
2.c www.iea.org
3. www.internationallng.com
4. Poten and Partners.com
5. BP statistics
c:(cccwww.eia.org
8(ccccwww.natural.gas.org

7(c ccwww.ncdex.com
(c www.mcxindia.com
(ccccwww.thiece.com
(ccccwww.platts.com
(ccccwww.infraline.com
3(ccccwww.gailonline.com
@(ccccwww.apec.org
(ccccwww.cera.com
:(ccccwww.wikipedia.com
8(cccccwww.google.com

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