Round Table discussion

Gas Pricing in India – A New Paradigm?

7th June 2004

Demand - Supply and Pricing in

India

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Indian Gas MarketDemand Supply

Demand Break up

ONGC78%

OIL6%

JV16%

Supply Break up

0 50 100 150

Supply Production Allocated Demand

Demand Supply

snapshot

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Indian Gas MarketCurrent Prices

Grid Entry Gas Prices in India

3.53.41

3.113

1.82

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

ONGC Gas Ravva Gas PMT Gas PLL LNG Other Producers

US

$/M

MB

TU

The Paradigm Shift!!

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Fuel procurement for proposed expansion of 2600 MW Quantity – 132 Tbtu p.a.Contract duration – 17 yearSelection – Through International Competitive BiddingBid participation – Keen participation from international

and domestic gas playersLowest quote of LNG + Services compared to that of

Natural Gas – NG competed against LNG

Overview of NTPC Tender

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Benchmark for Gas pricing Approximate $3 per mmbtu delivered price in Gujarat compared to grid entry

price of close to $ 3.5 per mmbtu for other marketers

Benchmark for transportation pricing Approximate $0.5 per mmbtu for transportation over 1400 km as compared to

approximate $0.7 per mmbtu postal tariff for HBJ Gujarat

First market discovered pricing through competition

New Pricing Structure 85 per cent fixed – no linkage to crude oil

Significance of Price discovery

Impact on Market?

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Expected volumes from RIL

RIL’s reserves – 14 TCF IP – 9.8 TCF recoverable (assumed 70% recovery)

Committed/being committed reserves Around 2.4 TCF to NTPC Around 3.4 TCF for REL Dadri Plant

Balance uncommitted recoverable reserves – around 4 TCF

RIL expected to bring in additional 20 MMSCMD for 15 years

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Demand Projections

Source: CRISIL estimates

70

200

0

20

40

60

80

100

120

140

160

180

200

2003 2010

Demand to reach 200 MMSCMD by 2010 from current consumption levels of 70 MMSCMD…

Demand: 2009-10(200 mmscmd)

Fertilizer28%

Others26%

Power46%Power & Fertilizer would continue

to be the dominant end-use sectors. City gas distribution, greater penetration into industrial and transportation segments, to expand the market

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Demand Supply Outlook

2003 - 04

2009 - 10

120

70

200

58 60 40

Unmet Demand:50 mmscmd

Unmet Demand:42 mmscmd

Volume in MMSCMD

Supply -

existing sources

Supply -Reliance

and other sources

Supply - LNG

Projected Demand

Allocated Demand

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Pricing Levels

What is the impact of the new price discovery on other players?

Will the market see different pricing for different consumers & based

on what factors?

Pricing Structures

Will there be different pricing structures in the market?

Can LNG players offer similar pricing structures?

Issues for debate

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Transportation costs

Is there a need to relook at the existing transportation charges?

Contracts Duration

Will the buyers be willing to enter into long term contracts for LNG?

Market Determined Pricing

Are we moving towards market determined pricing?

Issues for debate

Thank YouCRISIL Ltd.

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18-20 Kasturba Gandhi Marg,New Delhi 110 001

Tel:(011) 23320980/ 1073/ 1086/ 23721603

Fax : (011) 2372 1605