The state is fast becoming a most favoured destination for gas projects as research reveals that the state's gas demand will rise by 100 per cent over the next seven years.

Gujarat accounts for 18 per cent of the total domestic oil production and 11 per cent of the domestic natural gas production.

The state is estimated to record a gas supply shortfall of 400 per cent through 2011.

With a view to tapping the potential market, major companies such as Royal Dutch/Shell and Petronet LNG have already started making smart moves in the state and investment in this sector is witnessing a quantum jump.

A recent research by Ernst & Young on behalf of the state government revealed that while the demand for gas in the state now stands at 40.2 million metres standard cubic metres/day, it will go up to 79 MMSCMD by 2011.

In the existing supply scenario, the supply of gas in 2011 will be 20 MMSCMD against the existing 26.4 MMSCMD, thus recording a significant deficit of 59 MMSCMD.

Currently, the deficit is 13.8 MMSCMD, which is higher than that in 1998 when the deficit was 13.6 MMSCMD.

"As the gas market in the state is growing very fast, Gujarat has now become the most sought-after destination for liquefied natural gas projects. The first two LNG import terminals coming up in India are both located in Gujarat," Union petroleum and natural gas minister Ram Naik said.

"The first LNG plant with a five million tonne per annum capacity at an investment of over Rs 2,500 crore (Rs 25 billion) is being set up by Petronet LNG, a consortium of four Navratna PSUs – Gas Authority of India, Oil and Natural Gas Corporation, Bharat Petroleum Corporation and Indian Oil Corporation -- at Dahej.

"Shell is coming up with another huge terminal at Hazira through its subsidiary Shell Hazira Private Ltd. These two LNG plants would together supply 30 MMSCMD natural gas, once the plants are operational," Ram Naik said.

The LNG terminal of Shell Hazira is expected to be commissioned by the end of the next year.

The project of Petronet LNG is also expected to be commissioned during the next fiscal year.

"The success of the LNG projects will be influenced by two major issues -- restructuring of the state electricity boards and the tax incentives for the LNG projects through the proposed integrated LNG Policy.

The state government has recently taken up an initiative to restructure the Gujarat Electricity Board. The India government is working out the tax incentives for such projects.

Once these two issues are sorted out completely, we hope that the LNG projects will meet a major part of the gas demand in the state," said an industry observer.

Marc den Hartog, director of Shell, said, "When we had started working on the Hazira project, it was a risky proposition, but now as we have already received good responses from various big companies interested in buying gas from us, we may increase the capacity of our 5 MMTPA terminal to 10 MMTPA in the next five years."

Hartog's statement clearly shows that demand will be further high in Gujarat for gas and import may be the only way to cover the deficit.

But still, there will be a deficit of over 29 MMSCMD of gas in the state. For this, the state will have to depend on its own enterprise, the Gujarat State Petroleum Corporation Ltd.

GSPCL is currently producing 5.5 MMSCMD of gas from its Hazira field, which is bound to increase as the company has recently discovered a rich reserve of gas in another field located on the outskirts of Ahmedabad city.

"Still there is nothing much in hand. The production depends a lot on the success of the Shell's Hazira project and LNG Petronet's upcoming project in Dahej. It is obvious that the demand for gas will mount much more as the state is known for its fast growing industrialisation," said a senior member of the Confederation of Indian Industry.

Even the research report by Ernst & Young says, "...the availability of indigenous natural gas is not sufficient to meet the state's growing demand. Although this increasing demand mainly includes consumers like power and fertilisers, other consumers like cement, transport and household sectors are also likely to be attracted once the gas is available."