The Reliance discovery will not, of course, ease these complexities but it should  refocus the policy limelight on the importance of developing a nationwide pipeline infrastructure.  Today despite the investments made by GAIL and Reliance, the south and large parts of central and north India cannot access gas supplies.  There is no pipeline network in this geography connecting potential customers to supply sources.  This is a constraint on economic growth and in particular power generation.  It also complicates environmental management. 

The opportunity cost of inadequate pipeline infrastructure has risen in recent months because of the sharp decline in the price of Liquefied Natural Gas (LNG).  Had the infrastructure been in place, potential customers would have had the option of shifting from environmentally polluting fuels to gas on  competitive rates. 

A few months back spot LNG was trading at over $20/mmbtu. Today it is available for under $5/mmbtu.  This is because of the impact of the ‘great recession’ on the demand for gas in Japan, Korea and Taiwan. These three countries accounted for 69 per cent of the global LNG market in 2008.  Today these countries are in an economic doldrum. The slowdown in demand is compounded by an emergent supply overhang. 12 new LNG ‘trains’ are slated for commissioning over the next 12 months in the Middle East and Indonesia. The fact is that the LNG market which was until recently a resource constrained sellers market has now moved decisively into a demand  constrained buyers market.  Of course the power and fertiliser companies in western India where a pipeline network has been built by GAIL and the Gujarat government and where there is substantial import capacity can, if they have the risk appetite, lock into long term supplies at competitive rates.  The last time they had such an opportunity was in 2003-4 but they did not avail of it on the ground that any price above $3 was not competitive. I suspect they regretted this decision because not only did the price of LNG shoot up into double digits but the price of coal also followed the upward trajectory of other commodities.  Whether they do so now is however not the real issue.  The issue is whether the combination of the flow of gas from the Reliance discovery and the likelihood that imported gas may be available at attractive terms will spur the stakeholders into creating the necessary infrastructure.

... contd.