Prices set to tumble following Cairn's gas discovery

Vol 4, PW 8 (24 May 00) Midstream & Downstream

Industrial consumers in Gujarat are salivating at the prospect of cheaper gas from the discovery at CB-OS/2.

"The gas market here is a sellers market," one major consumer tells Petrowatch, "Cairn's discovery will make it a buyers market and prices will drop." In Gujarat the gas supply market is controlled by a cartel of Gas Authority of India (GAIL) and a consortium of Gujarat State Petroleum and Niko Resources of Canada - operator of the prolific Hazira gasfield that sits 'ring-fenced' in Cairn's concession. By the 4th quarter of next year, this cosy situation could change dramatically if Cairn sticks by its deadline to land first shipments ofgas to mainland Gujarat.

Niko aims to land its second tranche of gas from Hazira at the same time. "Cairn and Niko will be in competition," the customer tells Petrowatch, "With the reserves that Cairn is talking about you could eventually have an extra 10m cubic metres a day coming to market." He adds: "We'll buy our gas from whoever gives us the best price." Cairn is well placed.

Under its PSC for CB-OS/2 the company does not have to sell to GAIL. "That is a huge advantage because you can open it up to the highest bidder," Cairn tells this report.

The company is already in talks with Enron, Shell, Essar, Gujarat Gas and GSPC. Petrowatch further learns that Niko/GSPC charge $3.45 per thousand standard cubic feet for Hazira gas.

Customers in Gujarat hope the arrival of Cairn's gas will force the price to drop nearer the $1.50-2.50 range, more common in countries with a gas surplus. Cairn is setting up a team to manage its appraisal, development and marketing strategy.

Its first priority is to choose a suitable landfall point on the Gujarat coast.