India Gas Field to Double Supply, Open New Energy Era

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"The gas will be sold at more than twice the price fixed by government for sales from fields of state firms. . ."

India's biggest natural gas field will transform the energy landscape when production begins this month, eventually doubling the nation's supply of the cleaner-burning fuel and lessening its reliance on oil.

Reliance Industries' $8.8 billion project will mean many things to India's one-billion-plus people: more power supply from idled generators starved of gas; lower carbon emissions than its coal-generator sector; less need for costly naphtha or imported LNG for fertilizer firms aching for local alternatives.

But for investors, the D-6 field in the Bay of Bengal heralds a more important, but less apparent, sea change.

The gas will be sold at a more than twice the price fixed by government for sales from fields of state firms, and about the same as what customers pay for gas from BG-operated Panna/Mukta and Tapti fields.

While it is only the first of many steps needed to spur investment by deregulating more of the protected energy industry, still riddled with state-owned refiners and pricing distortions caused by state control over power and fuel, it represents an acknowledgement that market mechanisms play a vital role.

"The government has implicitly accepted that the market can indicate a price level that will allow accelerated development of gas in a way bureaucracy cannot do effectively," said Al Troner, head of Asia Pacific Energy Consulting.

As the fields ramp up towards a plateau of 80 million standard cubic metres a day by 2010, gas may take up to a fifth of the current liquid fuels market in Asia's third-largest oil consumer, which imports about 70% of the oil it consumes. They will produce enough gas to meet about a third of UK demand.

Analysts say the changes indicate the government considers it better to encourage more investment in domestic resources than keep subsidizing low prices at the risk of ever-rising imports.

"That's a very big change in thinking. A lot of people don't realize how much change there has been," Troner said.

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