GAIL Signs for Himachal Pradesh Gas Pipeline and Announces Petrochemical Project with IOC in Bihar

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Researched by Industrial Info Resources (Sugar Land, Texas)--GAIL (India) Limited (BSE:532155) (New Delhi), India's largest gas transmission and marketing company, has signed an agreement with the Himachal Pradesh government to link the state with the national gas grid. The plan is to extend the proposed Dadri-Bawana-Nangal gas pipeline through Uttar Pradesh, Delhi, Haryana and Punjab to the state. GAIL, in its deal with the Department of Industries, has sought cooperation from the state government to lay the pipeline. The project is estimated to cost about $520 million. Himachal Pradesh will be linked to the national gas grid through a 40-mile pipeline stretching from Rajpura town in Punjab to Baddi in the state. This section is planned to be completed by 2010-11 at an investment of $62 million.

Key sectors in the state likely to benefit from this project include the agricultural, fertilizer, power, industrial and transport sectors, which have a potential to utilize gas and compressed natural gas as fuel. Baddi, Barotiwala, Nalagarh and Parwanoo in the Solan district form the industrial belt of Himachal Pradesh, and gas-based industries along this route will leverage the advantages of the new gas pipeline. GAIL and the state government will explore the possibility of expanding into new territories within the state for transmitting and distributing natural gas. The Department of Industries will facilitate GAIL in obtaining clearances to develop its gas footprint and identify industrial regions to supply natural gas as fuel.

GAIL is also entering the petrochemical sector. GAIL and Indian Oil Corporation Limited (IOC) (BSE:530965) (Mumbai), India's largest petroleum company, announced that they have signed a memorandum of understanding to explore the feasibility of setting up a petrochemical plant in Barauni, Bihar. The proposed $2 billion, 300,000-ton cracker complex will use naphtha produced by IOC's Barauni refining plant and the eastern offshore natural gas GAIL intends to transport. In addition, imported liquefied natural gas will be supplied through the upcoming Jagdishpur-Haldia pipeline. An 80-mile spur line will be laid from Gaya to Barauni to transport gas from IOC's refinery to the new petrochemical unit. The two public sector companies will look at other operating refineries and gas fields, such as Krishna-Godavari, to procure feedstock for the plant.

GAIL and IOC have yet to decide on the project structure and their stakes in this partnership. The companies will conduct a preliminary feasibility study to analyze the technical and economic viability to set up the plant. The complex, which would also produce downstream derivatives, will take five years to complete, if feasible. The downward price movement triggered by low demand has forced domestic oil majors to export naphtha. Setting up the plant to process fuel will be a value-added proposition, and India offers tremendous potential in the downstream sector as one of the fastest growing petrochemical markets in the world.

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