GAIL India Seeks Approval for Gas Pipeline from Krishna-Godavari Basin to Madhya Pradesh

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Researched by Industrial Info Resources (Sugar Land, Texas)--State-owned Gas Authority of India Limited (BSE:532155) (GAIL) (New Delhi) has announced that it has applied for approval to build a gas pipeline from the Krishna-Godavari (KG) Basin in Andhra Pradesh to Madhya Pradesh to serve the power-starved industrial and domestic consumers in central and northern India. The cost of the project is estimated at $1.59 billion.

GAIL has submitted an application for approval to the Petroleum and Natural Gas Regulatory Board, which will consult with the Director General of Hydrocarbons before granting permission. The proposed pipeline would run 1,100 kilometers from Vijayawada in the southeastern state of Andhra Pradesh to Vijaipur in the central state of Madhya Pradesh. The pipeline would carry 25 million-40 million metric standard cubic meters per day, equivalent to 9.1 billion-14.6 billion cubic meters per year, of gas from fields in the KG Basin.

GAIL plans to obtain gas for the proposed pipeline from blocks in the KG Basin gas field currently operated by Reliance Industries Limited (BSE:500325) (Mumbai) and Oil and Natural Gas Corporation Limited (BSE:500312) (New Delhi). GAIL already operates the Hazira-Vijaipur- Jagdishpur pipeline. The proposed pipeline would strengthen Vijaipur as the hub of the combined network.

With the development of more gas-fired power stations in India, such as the 7,480-megawatt Dadri power station in Gujarat, demand for gas has increased in recent years. Since 1995, gas consumption in India has increased by more than 55%. Consumption is expected to double by 2010, and annual demand is estimated to grow by 9% over the next few years.

The previously proposed pipeline connecting Iran and India through Pakistan now seems unlikely to be built, so India needs to look for alternate gas supplies for the power-starved central and northern areas. The northern regions of India suffer from an extreme power deficit, and the proposed pipeline is designed to alleviate the demands of the 70 million domestic consumers as well as industrial needs.

However, it appears that GAIL is not the only company interested in a new gas pipeline from the KG Basin. Gujarat State Petronet Limited (BSE:532702) (Gandhinagar, Gujarat) has also submitted plans with the regulatory board for a gas pipeline with a capacity of 25 million metric standard cubic meters per day (9.1 billion cubic meters per year) from Mallavaram, Andhra Pradesh, to Bhilwara, Rajasthan.

Gujarat State Petronet intends to procure gas for its pipeline from the fields in the KG Basin owned by Gujarat State Petroleum Corporation Limited (Gandhinagar, Gujarat), which is owned by the state government of Gujarat. However, Reliance Gas Transportation Infrastructure Limited (Mumbai), a subsidiary of Reliance Industries, has raised questions of building two competing gas pipelines. Reliance Gas Transportation operates the existing East-West pipeline, which runs from the KG Basin to Bharuch in Gujarat, and proposes that it would be economically more favorable to build connections to this pipeline instead of developing an additional trunk line.

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