We are told time and again that our natural gas reserves are finite, and that supply is running out. But where are these reserves, and why are they disappearing so quickly?

The trick to finding natural gas is to look out for other fossil fuels – like coal and oil. Wherever you find these resources, gas is sure to follow.

However, many of these reserves are now running dry, especially in the West, and as a result energy companies are increasingly turning to gas from less conventional sources in order to meet consumer demand.

Right now, you’ll find most of our domestic gas comes from fields in the Middle East – the United Arab Emirates and Qatar, as well as Russia. But all this could change within a generation as their gas reserves dwindle and the world turns to other energy forms.

Natural gas is a very useful energy resource. It can be used in a variety of processes, form central heating to fuel for cars.

Some automobiles can be converted to run on natural gas, and compared to petrol, it is relatively clean burning and produces fewer toxic by-products.

However, the burning of natural gas still produces carbon dioxide as a by product, which is widely considered to be one of the greenhouse gases that is responsible for causing global warming.

The natural gas that is supplied to our homes is in fact far from natural. One of the initial processing steps is one which strips the Natural gas of any excess chemicals that are not needed, or may be dangerous. These chemicals include propane, nitrogen and ethane.

Once the gas has been purified, a small amount of foul-smelling but non-toxic perfume (if you can call it that) is added. The reason for this is that methane gas is completely transparent, with no smell of its own, and as such it is hard to detect in its pure form.

The addition of odour to domestic gas supplies was made standard practice after a tragedy that killed more than 300 people at a US college in the 1930′s. At this time gas was still scent-free and a build up of the gas went unnoticed, until it was too late.

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T. Boone Pickens is proposing to use more natural gas as fuel for automobiles. His ads are gaining traction and many people are beginning to ask themselves if a Compressed Natural Gas or CNG powered car is in their future.

The answer depends on knowing three simple facts; is CNG really much less expensive than gasoline, is CNG readily available, and are commercial cars with bi-fuel capability available for sale? The answers are yes, no, yes.

Natural gas can be offered at a significantly lower price than gasoline. In a recent ad by a large gas company a price of $2.04 per GGE was offered for CNG while the comparable price for regular gasoline was shown at $3.46 per gallon. The energy content of compressed natural gas is quoted in “Gallon of Gas Equivalent” or GGE. This is a new measuring unit, which is based on the energy content of the dispensed gas. By basing the price of CNG on its energy content, one can compare energy prices of CNG and gasoline directly. This is by far the best approach for the customer who can compare prices for two equal amounts of energy, one for a gas, the other one for gasoline. Measuring the dispensed amount of CNG is more difficult than measuring an equivalent amount of gasoline. However, a precise measurement can be made. Installing a CNG measuring device is just more expensive than its gasoline counterpart.

At present, there are almost no fueling stations equipped to dispense CNG. The natural gas industry will have to make considerable investments before a sufficient number of fueling stations will be locally available. If you are the lucky one who lives close to such a new station, you should seriously consider buying a new car with bi-fuel capability. For local driving one uses CNG, for long distance traveling one continues to depend on gasoline. By having two fuel tanks on board, one for CNG, the other for gasoline, the driver can select the fuel he wants to use.

Existing cars can also be converted. Cars burning compressed natural gas will perform flawlessly without any performance handicap. However, the conversion of a gasoline powered car is expensive and the large, high pressure cylinders for storing CNG must be installed in the car’s trunk when retrofitting.

A few car manufacturers are already offering vehicles equipped to use both fuels, CNG and gasoline. One can either use the one or the other fuel. An immediate changeover can be made by toggling a simple switch. In the US Honda is already offering its Civic GX model. Volkswagen, Opel, Mercedes, and Fiat are selling bi-fuel models in Europe. Other Europeans are making CNG powered models, too. American carmakers are sure to follow.

There are two remaining questions. How much natural gas reserves does the US possess and how reliable are early price signals? After all, imported natural gas is sold mostly by OPEC countries and the US is already importing small amounts of natural gas.

Available data puts US natural gas reserves at 230 tcf (trillion cubic feet). Present consumption is about 2 tcf annually. Consumption of natural gas will obviously sharply increase once CNG is used widely in automobiles and will also continue its annual rise as overall US energy consumption continues to grow. Annual natural gas consumption may soon grow close to 4 tcf. With this rate of consumption known natural gas reserves will last for more than fifty years.

When buying a bi-fuel car, we need to convince ourselves that CNG prices will stay stable and competitive in order to recover the higher purchase price of the bi-fuel equipped car. The natural gas industry has been using recent increases in the price of heating oil to significantly increase the price of natural gas. How can we make a realistic estimate about future price stability of CNG? Past history shows that the pipeline companies that sell natural gas to local distribution utilities were setting prices based on the same cut-throat practices used by OPEC.

Realistically, we do not have any effective protection from similar pricing policies in the future. We can therefore, expect that the advertised lower CNG energy prices will not last forever.

Only US Congress can step in and protect the consumer from exploitation. After all, gas companies are positioning themselves to ask US Congress to make CNG available as transportation fuel. We already know that the national oil industry is closely adhering to the OPEC lead when pricing domestically produced gasoline and diesel. US Congress must find the backbone and prohibit collusive price manipulation on the national level. The US administration must be especially careful with providing tax incentives or any other incentives for natural gas powered cars. Such incentives should only be considered if commensurate consumer protection provisions are part of the deal.

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Natural gas is an important source of energy in power, fertilizer, petrochemical and other industries. As stated above, the Government policies which are promoting investment in the gas sector by providing sops for LNG, are proof that it recognizes the importance of this sector.

The Report of the Sub-Group on Natural Gas and marking of petroleum products for XI Five Year Plan in its Report stated as under:

• It is a well known fact that Natural Gas, accounting for 24% of the total global primary energy supply, is the third largest contributor to the global energy basket and with a CAGR of about 3% over the last five years, it is growing at the fastest rate among fossil fuels.

• In the power sector, only 11% of total power generation capacity of 1,26,839 MW is based on gas whereas in the fertilizer sector, about 58% of production is based on gas. The corresponding figures in the petrochemicals and LPG/Liquid Hydrocarbon Sectors are 43% and 31% respectively.

• The Sub-Group on Gas Hydrocarbon Vision – 2025 also estimated the long term gas demand. According to this report, as against the requirement of 151MMSCMD in 2001-02, the domestic gas supply was 70MMSCMD. The Report forecast that in future, the demand supply gap would continue to exist, which will have to be met from imports and increase in domestic production.

• The Ministry of Power had also undertaken an exercise to identify gas based projects likely benefits from which could accrue during the XI plan period and beyond. The estimated capacity for these gas based power plants is of the order of 31765MW. Thus the overall new gas based capacity addition identified for future during XIth / XIIth Plan periods by the Power Sector are of the order of 33,655 MW. The magnitude of gas requirement for all these plants would be of the order of 100-120 MMSCMD, when the plants are set up.

• Department of fertilizers has proposed the case for switch over to 100% natural gas in the fertilizer sector, which is expected to give a push to gas demand in this sector during the XI Five Year Plan. The projected gas demand in the XIth plan period would increase from 40.82MMSCMD in the year 2007-08 to 79.36 in 2011-12.

• The estimated demand as per the current industry estimates in the petrochemicals/refineries and internal consumption (of gas industries) sectors is about 25.37MMSCMD in 2005-06. These industries are estimated to grow in line with the economic growth. Hence, an annual growth rate of about 7% is assumed during the XI plan period, which would result in demand of 33.25MMSCMD by the terminal year of the XI Plan.

Natural Gas / RLNG are subject to varying rates of Sales Tax in different States. In few States, the rate is as high as 20%. Besides, the high rate of tax, some States such as Assam, MP also do not allow input tax credit under VAT law to the gas consumers. As electric energy is exempt from VAT, the power generating companies have no choice but to absorb the entire burden as they cannot avail input tax credit. Similarly, goods used as fuel are not eligible for VAT credit due to restriction imposed by the states. This restriction badly affects all sectors that are using Natural Gas as fuel.

Since natural gas is a key input, due to this high and multiple point sales tax structure, the consumers are adversely affected particularly in the fertilizers and power sectors. Importance of natural gas is likely to increase due to increase in production of natural gas in the coming years with interstate trade also increasing consequently. It is important to note that suitable relief in sales tax will not only ensure that cost of gas to the end consumer is kept low but will also facilitate development of National Gas Grid in the country.

As a fuel, natural gas has to compete with coal, which enjoys “declared goods” status under Section 14 of the Central Sales Tax Act 1956 thus attracting maximum 4% sales tax. Also, natural gas and crude belong to the same category – “petroleum”. Thus, when crude enjoys “declared goods” status under CST Act, 1956 natural gas should also be extended the same benefit.

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