Many Indians may well be tempted to argue, as The Economist did in a recent article: "Why worry about high oil prices when a boom in natural gas may be on its way?''

It is rather difficult not to get carried away by recent reports on the huge gas finds in the country. Barely had the din over the discovery of 14 trillion cubic feet (TCF) of gas by the Reliance-Niko consortium in the Krishna-Godavari (KG) Basin subsided, came the news that the state government-owned Gujarat State Petroleum Corporation (GSPC) had discovered 20 TCF of gas in the same basin. Oil and Natural Gas Corporation (ONGC), which discovered the Bombay High fields in 1974 and Vasai in March 2003, has also reported oil and gas discoveries in onshore fields in Assam, Tripura as well as the kg Basin.

Cairn Energy and Niko Resources have also struck gas in the kg Basin and Surat, respectively. Suddenly, gas seems to be the flavour of the times in India. Says a Mumbai-based analyst with an investment bank: "It seems that kg Basin is India's Gulf of Mexico in terms of gas finds."

The Reliance-Niko consortium has committed investments of $2.47-billion (Rs 10,868 crore) to the kg Basin. Gas will begin to flow by March 2008, with an estimated peak production of 1,412 million cubic feet per day (MCFPD). GSPC could pump out between 1,765 and 2,118 MCFPD of gas everyday, assuming that 70 per cent of its reported discovery is recoverable in the next six to seven years. This means that the country's gas reserves are a lot larger than the previous estimate of 32 TCF.

Easy availability is not the only reason for gas emerging as the preferred fuel of the future. "Stringent environmental regulations, lower costs, low gestation period of gas-based plants, higher thermal efficiencies and the presence of flexible technologies in power and fertiliser plants will spur the switch to natural gas," argues Rajiv Memani, CEO of audit major Ernst & Young.

"We have one block of gas in Myanmar. If we can't pipe this gas via Bangladesh, we will ship it to India" Proshanto Banerjee Chairman & Managing Director/ GAIL India

Globally, gas constitutes nearly 25 per cent of the energy basket, compared to 7 per cent in India. But the entry of liquefied natural gas (LNG) into the country could change the dynamics of energy consumption here. Natural gas turns liquid when cooled to minus 163 degrees Centigrade. This can be shipped in refrigerated tankers to a desired destination (like India), where it can be warmed back into gaseous form and injected into the local pipeline system. The logistics of transportation, thus, becomes simpler by doing away with the need for expensive (and, sometimes, politically unviable) transnational pipelines. "Gas has become a fungible global commodity like oil," says a source in Shell. This technological innovation is likely to make gas the most important energy source in the world by 2025. Already, three large LNG terminals have come up at Dahej in Gujarat (5 million tonnes per annum), Kochi in Kerala (2.5 mtpa) and Hazira (5 MTPA). Others are coming up in Kakinada (Andhra Pradesh), Dabhol (Maharashtra), Trombay (Maharashtra), Jamnagar (Gujarat) and Pipavav (Maharashtra) and are expected to be ready by around 2010. Together, these terminals will have a combined capacity of 50 MTPA of LNG.

Analysts say the development of a gas-based economy will depend on three main factors: the level of domestic discovery, the demand-supply situation that will determine pricing, and the geo-political situation around the country. There is currently a 1,835.6 MCFPD shortfall in gas supplies in the country. This is forcing many power and fertiliser companies to use environmentally-hazardous coal and the more expensive naphtha to fire their plants. That gap is expected to touch 6,001-6,354 MCFPD in the next five years.

Thus, incremental supplies of 1,412 MCFPD from Reliance and between 1,765 and 2,118 MCFPD from the GSPC field in the kg Basin will only partially bridge the yawning, and growing, gap. A decline in the output of gas in the Mumbai High and the Bassein fields will be partly offset by higher production in the Panna-Mukta and the Tapti fields. The massive deficit will have to be met by LNG imports from Petronet, Shell and Enron LNG (as and when it starts functioning).

"We are investing Rs 24,000 crore on gas, pipelines, refineries, petrochemicals and R&D infrastructure" Sarthak Behuria Chairman/ Indian Oil Corporation

The veracity of these projections will depend, to a large extent, on capacity creation in the power sector-such as Reliance Energy's proposed 3,740-mw plant at Dadri in Uttar Pradesh and Tata Power's 1,000-mw plant, which may be set up in Bawana (Delhi), Jhajjar (Haryana) or Bulandshehar (up)-conversion of liquid fuel-based fertiliser and power plants to gas-based ones, rolling out of domestic gas distribution projects in a number of cities and growing industrial demand. According to ICRA's projection, the country is set to increase its gas-based power generating capacity by 30,000 mw over the next 12-15 years. This will translate into an incremental demand of 3,530-3,883 MCFPD of gas.

But the government's subsidy policy threatens to derail all these projections and projects. User industries have based all their calculations on the subsidised rate of $1.6 (Rs 70.40) per MBTU (million British thermal unit). The market determined price of $4-5 (Rs 176-220) per MBTU is two-and-a-half to three times as high. No wonder then, a company like Shell, which has invested Rs 3,000 crore on setting up an LNG plant at Hazira, finds few takers for its LNG. Says Subhomoy Mukherjee, Head (Oil & Gas Research), ICRA: "A market-driven pricing mechanism is critical for attracting investments in upstream exploration and production activities, cross country pipelines and the LNG business". The government has to get its act together, otherwise the gas story may go kaput.

New energy sources-coal in the 19th century and oil in the 20th-changed the global political and economic equations at different points of time and powered Great Britain and the US, respectively, to positions of global dominance. Experts are unanimous that the current century will be powered by gas. The government has to act if India is to catch the bus this time.