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COMPARING TRANSPORTATION MODES FOR NATURAL GAS

BY SACHIN ARUN MAHAJAN ENROLLMENT NUMBER: D 090109033

A DISSERTATION REPORT SUBMITTED IN PARTIAL FULLFILLMENT OF THE REQUIREMENTS FOR EXECUTIVE MASTER OF BUSINESS ADMINISTRATION (OIL & GAS) OF UNIVERSITY OF PETROLEUM & ENERGY STUDIES, INDIA

FEBRUARY - 2011

ABSTRACT
Natural gas is emerging as the preferred fuel due to its environmental friendly nature. It is one of the prime sources of clean fuel. Natural gas mostly consists of methane as a major constituent. Pipeline and waterway transport are the main option modes to transport oil and gas, which have their individual characteristics, strengths, competences, and inter-substitution. Natural gas is low in density1. This makes natural gas difficult to transport. As of today there are only two proven ways of transportation for natural gas viz. pipelines and marine vessels. Transporting natural gas via pipelines across the ocean is nearly impractical. Natural gas after converting from Gas-to-Liquid state which is also known as LNG is now increasingly transported by specially constructed vessels across the world. CNG can be transported on short distances by road tankers. Domestic production of natural gas is around 87 million standard cubic meters per day. Current producer for natural gas in India are Oil and Natural Gas Corporation, Oil India Limited and other joint ventures2.

In this paper various transport modes for natural gas has been studied. The study aims to highlight on the issues such as various transport modes, types of transport modes for natural gas, economy of transport modes, safety issues in the transportation of natural gas, technical advances in design of transportation modes(both for pipelines and marine vessels), city gas distribution, limitations of the ways of transportation, storage structures, and availability of infrastructure for natural gas, comparison with transportation of other type of energy sources, geopolitical impact on the natural gas availability, comparison between pipelines and waterwaymode of naturalgas.

1: Natural Gas Information from MOPNG 2: IEA report on Natural Gas India, 2010 i

TABLE OF CONTENTS

Abstract Table of Contents Chapter 1 Introduction 1.1 Background 1.1.1 Overview of Natural Gas and Natural Gas Industry in India 1.1.2 Supply and Demand Scenario for Natural Gas in India 1.1.3 Purpose of the Study Chapter 2 Literature Review Chapter 3 Research Methodology 3.1 Sources of Data Chapter 4 Analysis and Findings 4.1 Options of Natural Gas Sources and Transportation for India 4.2 Process of Liquefaction and issues in transmission 4.2.1 Cost Factor 4.2.2 Safety Issues Chapter 5 Conclusion and Scope of Work References

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THIS DISSERTATION IS DEDICATED TO MY FAMILY

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Copyright 20TH FEBRUARY 2011 SACHIN A.MAHAJAN

Chapter 1 INTRODUCTION 1.1. Background 1.1.1. OVERVIEW OF NATURAL GAS AND NATURAL GAS INDUSTRY
Natural gas also called marsh gas, swamp gas, and landfill gas; a gaseous fossil fuel that is found in oil fields, natural gas fields, and in coal beds; a mixture of hydrocarbon and small quantities of non-hydrocarbons that exists either in the gaseous phase or is in solution in crude oil in natural underground reservoirs, and which is gaseous at atmospheric conditions of pressure and temperature.
Natural gas for the ease of transportation or storage is converted into liquid. LNG occupies about 1/600th of the volume of natural gas. Depending upon composition, natural gas becomes a liquid at -1620 C at atmospheric pressure. (http://www.giignl.org/fr/home-page/ lng-basics/, February 17, 2011)

Natural gas is emerging as the fuel of choice. The requirements of natural gas as fuel of choice are increasing worldwide due to various reasons. The main reasons can be cited as climate change, the properties of natural gas as clean fuel, regulatory requirements, requirements by various industry sectors like power, fertilizers, transport industry (vehicles) etc. Beside above factors, the rising and fluctuating prices of crude oil, depleting sources for easy oil, nature of coal as highly pollutant, scarce availability of other clean and

cheaper fossil fuels, high cost in renewable energy sources may be cited as reasons why importance being gained by Natural Gas as important fossil fuel.

1.1.2. Supply & Demand Scenario for Natural Gas in India


Indian primary energy supply is currently dominated by coal (37%), biomass and waste (27%) and oil (26%) while the share of natural gas is only 6%. This has been relatively successful after stagnating since the early 2000s; Indian gas production is expected to double between 2008 and 2011 due to the start of the Krishna Godavari KG-D6 field in April 2009. The year 2009 therefore marks a turning point for the Indian gas market: with new supplies available, Indian gas consumption increased to 59 bcm in FY 2009/10, from 43 bcm in FY 2008/09.1 meanwhile a third LNG terminal is expected to start in 2010. But challenges remain, illustrated by NELPs failure to attract the major international oil companies and the long battle over the allocation and price of KG-D6 gas. The government is now considering introducing an OALP4. MMSCMD Demand Supply Gap 2009 181 179 2 2011 223 207 16 2012 245 218 27 2025 349 286 63

Source: A. Sengupta, Director (F&C), Petronet LNG, January 19, 2010 The Indian energy sector is dominated by state owned companies. Oil and Natural Gas Corporation and Oil India Limited dominated the upstream sector. Private players coming into the picture after economic reforms of the late 1990s and opening up of petroleum sector to private companies. Introduction of NELP helps

attract private entities into upstream sector. Organizations like Cairn, Reliance, NIKO, and Shell are participating in development of infrastructure for LNG. Infrastructure for production, storage, process and transmission requires huge capital cost. Insufficient supplies: The bulk of Indias supplies are produced domestically but demand for gas is increasing while production from the old fields has been dwindling. While most gas production used to be produced by state-owned companies, this is changing rapidly: JVs and private companies represent an increasing share of domestic production. Although domestic production will double between 2008 and 2012, developing domestic gas resources is critical to increase supplies to the Indian market. Even if NELP has resulted in a certain number of discoveries, including the major Krishna Godavari KG-D6 field, it also has some shortcomings. India is also likely to see imports increasing over the next two decades. Although India is also located near significant resources of gas in Turkmenistan and Iran, pipeline interconnections remain a distant prospect. India has been turning to LNG instead and is building new regasification terminals, adding to existing capacity. Future supplies in the coming five years will therefore continue to be based on two sources: domestic production and LNG imports.

1.1.3. PURPOSE OF THE STUDY


Natural gas requirements are rising. Natural as we know is supplied in various forms like LNG, CNG, PNG, GTL, and NGH. This requires various modes of cost effective modes of transportation on domestic as well as international level. India is currently expanding indigenous and international pipeline infrastructure. At the

same time LNG being imported by sea route from the countries for ex: Qatar and Iran. Purpose of this study is to compare the different available modes of transportation for natural gas in its various forms. Current scenario implies that natural gas can be transported either by pipelines or marine vessel on global basis.

The mode of transport varies from nation to nation depending upon advances in the technology, local and state regulations etc. In India natural gas is transported via pipelines and imported by sea route on majority basis. Petronet LNG limited has recently started supplying LNG in specially designed road tankers for the purpose of carrying cryogenic products. Liquefied Natural Gas (LNG) shipping is destined to be one of the most lucrative businesses in the future. India is expected to become a major importer of LNG in the next 2 to 3 years. LNG terminals are being established in various locations like Dahej, Kochi, Ennore, Dhabol, and Pipavav

Chapter 2 LITERATURE REVIEW


This dissertation study focus on the comparing different options available for transporting natural gas within India and to India in the form of LNG thru various import options. The study of this type is solely dependent on the secondary sources of information available thru internet search. In the absence of any primary data options, data have been obtained thru internet from various published reports, articles, thesis, newsletters, research publications of government and private entities. For this study, in the absence of primary data like any sponsor, personnel interaction, interviews etc. only secondary data has been collected. No hypotheses has been created and sources like internet, books, reports, websites, news, articles, papers, presentations has been used to gather information and present it as in its original format. Articles, reports and data are available on pipeline case scenario for transnational and national pipelines for transportation of natural gas. Liquefied natural gas (LNG) is to be imported to harness Indias power and fertiliser projects. This plan involves huge volume of business for the shipping industry amounting to several billion dollars. However, this process is expensive because it costs US$200 million for one ship to carry LNG. Therefore, it is important for the Indian shipping companies to build strategic tie-ups with their foreign counterparts. (http://www.shippingbiz360.com/article/8/20091021200910211858496404b7ea431/Challenge s-and-opportunities-for-India%E2%80%99s-shipping-industry.html)

In-depth review of literature indicates studies have been conducted on pipeline mode of transporting natural gas within India. Reports are also available on various transnational pipeline options, for ex: Myanmar-India pipeline, Iran-Pakistan-India pipeline, Turkmenistan-Afghanistan-Pakistan-India pipeline etc. Studies also conducted on national pipeline network, CGD, interstate pipelines and piped natural gas. Comparative study for comparing transmission mode for natural gas is not available yet and there is much scope to compare various options of importing natural gas to India in one combined study. Such type of study will be helpful for regulatory authorities, government institutions, financial institutions, private equities in future planning of securing the vital energy source of natural gas.

Chapter 3 RESEARCH METHODLOGY


This research problem is studied by use of descriptive research. Descriptive research is used to obtain information concerning the current status of the phenomenon to describe what is in existence with respect to variables and condition in a given situation. The methods involve range from the survey which describes the status, the correlation study to investigate the relationship between variables. IEA projected gas demand to increase at 5.4 % per annum from 2007-2030 reaching 132 bcm by 2030. As stated in IEA report, India currently dont have any international pipeline connections hence all the import of gas is in the form of LNG that means by way of marine tankers.

3.1 Source of Data


Secondary Data: The secondary data was collected by visiting various internet sites such as Ministry of petroleum and natural gas, International Energy Agency, World Energy Council, Infraline reports, companies websites like shipping companies, LNG pedia, LNG world, Oil & Gas Journal, TERI, Hydrocarbon Processing, research papers, CERA, Google search, newspaper articles, Petronet LNG Limited, Shell Hazira Limited, Rasgas, Qatargas, Gazprom, Naturalgas.org, International Importers for LNG website, US Energy Information Administration, PGNRB, KPMG report, RGPTL, GSPCL, NTPC limited, Spice Energy, GAIL, SPE, Canada natural gas website, OPEC, Petrofed, project monitor, BP statistical review.

Chapter 4

ANALYSIS AND FINDINGS

Consumption Pattern of Natural Gas In India


3% Power Fertilizer

4% 4%

9%
40%

Petrochemical
City Gas LPG Iron & Steel 3%

Figure 1: Consumption Pattern of Natural Gas in India By 2030 natural gas is expected to account for more than 10 percent of Indias energy consumption. Strategically therefore Natural gas is important fuel for Indias development. Dependence on natural gas is justified due to economic, environmental, technical reasons. To fulfill the growing need of natural gas requirements, India needs balance infrastructure for receiving, supplying, distributing, storing of this vital energy source. At this stage though several studies, reports available for pipeline scenario in India; comparative study for effective transportation modes is not available. Marine transport and pipeline transport have their own advantages and disadvantages. This study tries to focus on comparing various modes of transport for natural gas in its various forms, history of marine transport, future of marine transport with reference to LNG, history of pipeline transport and future of pipeline transport for natural gas in its various forms. 9

Key issues In Transportation of Gas Pipeline Density is very low compare to USA & China Existing connected market cannot absorb future supplies National Pipeline Grid Needs priority & focus for speedy implementation Requires huge investment Levy cess Pass on benefit of logistics & transport cost savings to end users Integrated grid to link any source to any market
Source: Hydrocarbon Vision 2025, GOI.

International transportation of products by pipelines is preferred to other modes of transport for the reasons of safety, operational conveniences and its environmental benefits. In most cases, transportation of products by pipelines is cheaper in comparison to other modes like rail and road. Recent gas discoveries are expected to lead to new pipeline infrastructure set-ups. Similarly, the product pipelines may also see growth with new refineries being set-up.

4.1. Options of Natural Gas Sources and Transportation for India


Natural gas is now being produced in India due to the recent discoveries by private entities. Reliance industries have discovered huge natural gas in KG basin. Indigenously natural gas can be transported via developing inland pipeline infrastructure. One of the news article appeared in Project Monitor journal dated June 14th 2010 which contain interview of Mr. Dinesh K. Khare, Managing Director, KazStory Service Infrastructure India Pvt. Ltd stated that India lags far behind in pipeline infrastructure for gas sector. As stated in this interview France as compared to India has 65,000 Km long pipeline network twice as 25,000 Km of India.

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We can classify transportation of natural gas based on its nature as below:

Natural Gas

Compressed

Liquefied

Natural Gas

Natural Gas

Piped Natural Gas Figure: Natural Gas Classification

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Figure: Different Modes of Transportation for Natural Gas

Natural Gas

Natural Gas by Pipelines

Natural Gas by Road Tankers

LNG by Ships / Vessels

Indigenous Pipelines

Subsea Pipelines

Transnational above ground pipelines

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Figure 2: Dabhol LNG Terminal Source: http://www.hydrocarbonstechnology.com/projects/dabhollngterminalmah/dabhollngterminalmah1.html

http://www.igu.org/html/wgc2003/WGC_pdffiles/10502_1045747614_1430_1.pdf

4.2. Process of Liquefaction and Issues In Gas Transmission: Safety / Cost / Logistics / Time/ Market 4.2.1 Cost Factor: Currently, the countrys gas supply is dominated by administered price
mechanism (APM) gas, which is supplied at a subsidised rate. Going forward, private/JV fields will dominate gas supply. Price of gas from JV fields is market-determined and governed by production sharing contracts (PSCs) signed with the government. The landfall price of RIL gas at $4.2 per million metric British thermal units (mmbtu) is sharply higher than the landfall price of APM gas at $1.8 per mmbtu. On the back of APM gas price increasing in the medium term, CRISIL Research expects the average gas price in India (delivered excluding sales tax) to increase from around $4.3 per mmbtu in 2008-09 to about $6.2 per mmbtu in 2013-14 - an increase of 44 per cent.

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The most preferred alternative methods of gas supply are pipeline transportation of natural gas, LNG and CNG. Transportation of natural gas through high-pressure pipelines is cheaper than LNG for distances of 7,200-8000 km; for longer distances, LNG is preferred. Transport of CNG over long distances involves relatively newer technology, the commercial feasibility of which is still being explored3. Current Pricing Mechanism in India The natural gas pricing scenario in India is complex and heterogeneous in nature. There are wide varieties of gas price in the country. At present, there are broadly two pricing regimes for gas in the country - gas priced under APM and non-APM or free market gas. The price of APM gas is set by the Government. As regards non-APM/free market gas, this could also be broadly divided into two categories, namely, domestically produced gas from JV fields and imported LNG. The pricing of JV gas is governed in terms of the PSC (Production Sharing Contract) provisions. It is expected that substantial gas production would commence from the gas fields awarded by the Government under the New Exploration Licensing Policy (NELP). As regards LNG, while the price of LNG imported under term contracts is governed by the SPA (Special Purchase Agreement) between the LNG seller and the buyer, the spot cargoes are purchased on mutually agreeable commercial terms4.

4.2.2 Safety Issues in Natural Gas Transportation:


Natural gas currently imported in the form of LNG by ships in India. Sea route is strategically very near to current sources of natural gas i.e. Qatar and other Middle east regions. But the increasing threat of piracy, time and cost of transporting by sea route needs to be looked into with greater emphasize on the availability of dedicated vessels

3: Gas-related gyan for accountants, Business Line, New Delhi, Petronet LNG website 4: Pricing of Natural Gas In India, Harsh Kanani, 14th January 2011

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for transmission of natural gas. As of today, shipping policy of India with respect to natural gas transportation in India is not clear and transparent.

Proposed transnational pipelines to India for natural gas have their own issues of geopolitics, cost, threat due to terrorism etc.

LN G Shipping Policy The Directorate General of Shipping has issued guidelines on the chartering of LNG carriers (5th July 2004). Currently, the guidelines provide that licenses will be granted to carriers for the import of LNG only if the vessel is an Indian flag vessel or if the Indian partner owns the LNG vessel wholly (or owns not less than 26% of the ownership of the company owning the said LNG vessel). In such a case, owners will have to submit an unconditional undertaking to convert the vessel into an Indian flag vessel within one year after the introduction of the tonnage tax regime ((TTR) 5. The current LNG shipping policy restricts LNG import only on Indian flag vessels the Indian companies with a minimum of 27% in possession of the carrier. The company may import LNG on a spot basis on ships other than Indian flag vessels to import. This is subject to the condition that the charge on this item ships to 11% of the total LNG imports will be limited in the year. The debate in shipping circles about the LNG shipping policy is expected to allow greater choice of carrier. The limitation in the current LNG shipping is based on the foreign company and any reform is likely to cause the anger of the local shipping companies. The prevailing LNG guidelines were distributed on the basis of global practices and then, with the aim of India framed to meet energy needs. The guidelines from the way the participation of foreign companies, equity contribution by domestic companies through the transfer of technology over a period of time followed.
5: Gas and LNG overview, A report by Shardul Thacker and Dipti Rambhia, Mulla & Mulla, Mumbai

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Indian shipping companies demand specific subject, so that the banks are willing to fund them for the purchase of ships. Without these companies unable to compete with the much financially stable foreign companies. In its latest market study: RNCOS experts explain that a change in policy are only sufficient for foreign shipping giants like Royal Dutch / Shell in the Indian market to overcome, because it Indian Oil & Gas Industry An Industry Analysis LNG import can with their own transport companies6 .

6: http://indiadebate.in/2011/02/investors-and-players-not-satisfied-with-new-lng-shipping-policy-2/

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http://www.chemsystems.com/reports/search/docs/prospectus/MC06_LNG_%20Pros.pdf 1.1 http://www.greeningofoil.com/post/Greening-gas-delivery-LNG-versus-pipelines.aspx

Onshore LNG terminals


Figure3: The Process of Natural Gas Liquefaction and Regasification

When facilities at the port are adequately upgraded, operations can switch from using a FSRU to using an onshore LNG terminal. As explained before, the two qualities, heating value and LNG composition, are of great importance since they affect design of the regasification terminals equipment. A general layout of an onshore receiving/ regasification LNG terminal is outlined as follows.

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Figure Layout of an onshore LNG terminal (Canaport LNG 2009.)

Once the LNG tanker (1) is docked and safely moored, LNG is gradually chilled to 160C. Then, the LNG is transferred onshore with the aid of the pumps inside the ships tanks and the multi-purpose jetty (2). This jetty is comprised of liquid loading arms and one vapor return loading arm. An insulated pipeline is used to transfer the LNG form the carrier to the terminals LNG tanks (3) with an unloading rate of approximately 10,000 m3/h. The capacity of the tank is 160,000 m3and the standard requires at least two storage tanks. Vapours generated in unloading are returned to the carrier via an insulated vapour-return pipeline, in order to keep positive pressure in the ships tanks, thus a constant flow of pumped LNG. Besides, losses of electrical power, vapour are safely vented through the cold vent (9). When there is demand for Natural Gas, low pump pressures (4) keeps the LNG move from the tanks to the recondenser (5). It is the fact that stored in the storage tank; some LNG is heated to become vapour. This vapour or boil-off gas (BOG) is removed and processed by the BOG compressor (6) before

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going to the recondenser (5). In the recondenser (5), BOG is recondensed and mixed with the LNG from the low pressure pumps (4). After that, through high pressure pumps (7), the LNG is moved to the vaporizers (8). Here the LNG is turned to Natural Gas and then transported to users with pipeline pressure. (Canaport LNG 2009 and Mustang 2005) Several vaporizer technologies in LNG regasification have been developed. Vaporizers can utilize air, seawater or gas itself as the primary heat source. The factors to be considered in choosing a vaporizer technology are initial investment, operational costs, maintenance, reliability, availability, air emissions, water emissions, and environmental footprint and impact. The widely used technologies in use nowadays are seawater-based and gas-based. The operations and costs associated with

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gas-based vaporizers differ significantly from those of seawater vaporizers: the gasbased requires more space and operating costs compared with the seawater-based. Especially, gas-based technology is not preferable in view of its greenhouse gas emissions. (CEE 2006, 44-54.)

In case that there is sufficient seawater, seawater-based vaporizers are of great economic sense and environmental friendliness. PV Gas sees seawater-based technology a wise solution given that the endowed resource of seawater in Vietnam ports can help efficiently make use of the technologys advantages. There are two main designs using seawater heat including open rack vaporizers

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(ORVs) and shell and tube vaporizers (STV). Above all vaporizer technologies, the most commonly used in the world is ORV vaporizer. (CEE 2006, 44-45.) In addition to fixed facilities, utilities for terminal operations are in a utilities building, with the exception of electricity. Electricity is commonly supplied from a local electricity grid. Offices and control room at the receiving LNG terminal are required to be located away from the process area for safety reasons in case of flames or explosions. (Mustang 2005) http://www.lngfacts.org/ C:\Users\SAM\Desktop\ANLNGPROJECTININDIASettingupofanimportterminalANDTH EROLETRANSPORATION.pdf

War and Oil - The Pipeline Politics By Rohit Singh Issue: Vol 24.2 Apr-Jun 2009 | Date: 02 September, 2010, LANCER INDIAN DEFENCE REVIEW, http://www.indiandefencereview.com/

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Reference 6

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Source: BP Statistical Review for 2010

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Reference 22

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1.

UNDERGROUND STORAGE OF NATURAL GAS - AN OVER VIEW-August 27,2009, ENGINEERS INDIA LIMITED

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Source: http://www.iglonline.net/Documents/Presentation/Roadshow_23_Jan_05.pdf

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Chapter 5

CONCLUSION AND SCOPE OF WORK


Studies have been conducted on transportation, availability of infrastructure for natural gas in India. Specific studies also available for pipelines including proposed transnational and indigenous, city gas distribution and interstate pipelines. Issues and studies on LNG shipping by sea route has scope for further studies including safety, design , cost of sea transporation.

SIGNIFICANT EVENTS IN THE HISTORY OF LNG SIGNIFICANT EVENTS IN

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References
1. Ministry of petroleum and natural gas, India 2. International Energy Agency 3. Websites: M/s. GAIL India Limited M/s. Petronet LNG Limited M/s. Shell Hazira LNG M/s. Ratnagiri Power and Gas Limited M/s. Infraline India Limited M/s. Vedam books M/s. Qatar Gas USA Energy Information Administration

4. Society of Petroleum Engineers 5. LNG Pedia 6. LNG Unlimited 7. Natural gas.org 8. Petrofed India 9. India Hydrocarbon Vision Report 2025 10. Report of the working group on petroleum & natural gas sector for the XI plan (2007-2012). Ministry of Petroleum & natural gas, November 2006 11. IEA- Natural Gas Report for India 2010 12. Market development in India, reviewing the strategies for natural gas 2030, Rajeev Mehrotra, GAIL(India) Limited, New Delhi

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13. The oil and gas sector overview in India 2009, KPMG India 14. Development of Natural Gas Industry in India, presentation by Mr. Suresh Mathur, Ex. CMD, Petronet LNG Limited, 21st may 2010 15. Handbook of Natural Gas Technology and Business, Edited by Parag Diwan and Ashutosh Karnatak, Pentagon Energy Press, 2009, xxxii, 976 p, ISBN : 81-8274-436-3, 16. http://www.marketresearch.com/map/prod/2382989.html 17. Business Line, India

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