Andhra fears Delhi bias against domestic gas

Vol 6, PW 26 (12 Mar 03) Midstream & Downstream

ANDHRA PRADESH believes it is sitting on a problem of plenty and is determined to convert the problem into an opportunity to transform the state into one of India's economic and industrial powerhouses.

"Our government will do its best to see that most of the gas is used within the state," a member of the gas utilisation study team tells PETROWATCH. "Reliance's gas is dry but we will try and persuade them to set up a petrochemicals complex." Whether Reliance agrees is another matter.

"Reliance says it can produce 40m cm/d but plans to send about 20m cm/d to consumers outside the state," says a source. Andhra officials are not disheartened.

They are convinced that if natural gas is priced "right" most of it will remain in the state to work its magic on the local economy. "Everything depends on the price of gas," he adds.

"And this depends on the government of India. If the price is competitive a lot of industries will switch to gas and a lot of new industries will come up." What is a competitive price "Industry here wants gas at $2.50 per mmbtu.

Our estimate is that at landfall both Reliance and Gujarat Petroleum could sell gas at $2 per mmbtu." Yet Andhra is worried that Delhi might "play dirty" and "artificially hike" domestic natural gas prices to create a market for expensive LNG. "If that happens, it will be a major setback for our economy.

We want the government to leave gas prices to the market and not artificially hike them." If gas prices are left to market forces, we are told, producers will supply as much as possible to boost cash flow. Andhra Pradesh is watching Delhi's moves carefully.

"We will take pro-active measures. Our chief minister will put his weight against any plans to create artificial barriers to the use of natural gas."