THE BIG FAT PROSPECTS

Maritime Gateway - - Cover Story - Sisir Prad­han

In a bid to re­duce the dis­par­ity of gas ac­ces­si­bil­ity and LNG ter­mi­nals that is now con­cen­trated on the west coast, the Pe­tro­leum Min­istry aims to add ca­pac­ity on the east coast. The fo­cus is to im­prove pen­e­tra­tion of the piped gas net­work to boost de­mand in the eastern parts for do­mes­tic and in­dus­trial use. With Pe­tro­leum and LNG im­port on a growth tra­jec­tory, liq­uid cargo han­dling at eastern ports needs to catch up with west coast ter­mi­nals to fuel oil and gas-based eco­nomic growth

Global oil trade routes are mov­ing East, as China and In­dia re­place the United States as top oil im­porters. When it comes to con­sump­tion of pe­tro­leum prod­ucts, In­dia is an oil guz­zling na­tion, and the coun­try’s per capita con­sump­tion is only next to the US, EU and China. With a Y-O-Y growth of 5.3 per cent in FY201718, and as high as 11.6 per cent in FY2015-16, the de­mand is not go­ing to sub­due any time soon. In­dia ful­fils al­most all of its crude oil re­quire­ment from im­ports, and with con­sump­tion of 4.14 mil­lion bar­rels per day, its share is more than 4 per cent of the to­tal world con­sump­tion and the sec­ond largest im­porter of oil in the world af­ter China.

In­dia is also im­port de­pen­dent for ed­i­ble oil and var­i­ous in­dus­trial chem­i­cals to meet its re­quire­ment. No won­der the coun­try’s liq­uid cargo im­ports is ma­jorly driven by 256.3 MMT of crude oil and pe­tro­leum prod­ucts, and about 15 MT of ed­i­ble oil. Given the enor­mous vol­ume, the coun­try re­quires some mam­moth in­fra­struc­ture at sea and land to keep the econ­omy well oiled.

Im­ported liq­uid cargo is largely han­dled at seven port clus­ters, among which ports and ter­mi­nals in Gu­jarat han­dle about 65 per cent of to­tal crude im­port, fol­lowed by Mumbai, New Man­ga­lore and Paradip han­dling 7-8 per cent each, and re­main­ing ports Cochin, Chen­nai and Visakha­p­at­nam han­dle 4-5 per cent each.

Mar­ket size

Liq­uid cargo is broadly di­vided into 3 seg­ments: pe­tro­leum prod­ucts and crude oil, LNG, chem­i­cals and ed­i­ble oil. Based on the eco­nomic growth and en­ergy re­quire­ment, In­ter­na­tional En­ergy Agency has fore­casted that by the year 2040 In­dia’s econ­omy will be­come 5 times of its cur­rent size and the most pop­u­lous na­tion in the world, as a re­sult it will have the high­est en­ergy de­mand in the world. In­dia will alone con­trib­ute to about 25 per cent rise in global en­ergy con­sump­tion, and a ma­jor part of the coun­try’s en­ergy re­quire­ment will be ful­filled from coal and oil. De­mand for im­ported pe­tro­leum oil and LNG will con­tinue on an up­ward trend.

De­spite ef­forts by govern­ment and pri­vate agen­cies to in­crease do­mes­tic en­ergy pro­duc­tion, 30 per cent of In­dia’s pri­mary en­ergy needs for do­mes­tic and in­dus­trial con­sump­tion are ful­filled from im­ported POL, LNG and coal. The coun­try con­tin­ues to strug­gle with oil pro­duc­tion of just 700kb per day due to lim­ited avail­abil­ity of the nat­u­ral re­source. With the cur­rent trend in the next two decades, In­dia’s de­pen­dency on im­ported oil will grow to more than 90 per cent and by the year 2040 oil im­port is likely to touch as high as 9.3 mb per day.

In­dia has an­nual re­fin­ing ca­pac­ity of 235 MMT of which 194 MMT of prod­ucts are con­sumed do­mes­ti­cally, while the rest is ex­ported. In­dia is also a net ex­porter of Gaso­line, Naptha,

Jet fuel and Gas oil. The coun­try is in the process of in­creas­ing its re­fin­ing ca­pac­ity to around 310 MMT by 2023. As a re­sult there is also scope in han­dling liq­uid cargo ex­port.

In­fra­struc­ture gaps

Vol­ume con­tri­bu­tion from liq­uid is about one-third for most of the ma­jor ports and in case of some pri­vate ports there has been a steady growth, and com­bined vol­ume of liq­uid and con­tainer has over­taken bulk. But still the seg­ment is bat­tling with some ma­jor in­fra­struc­ture short­com­ings.

Shar­ing some of the con­cerns per­tain­ing to the liq­uid cargo trans­port,

Di­nesh Donadi, Ter­mi­nal Man­ager (Hal­dia), Re­liance In­dus­tries stressed that ports need to give pri­or­ity berthing to liq­uid cargo car­ri­ers. Ves­sels have to wait for more than a week to get a berthing, and it hap­pens at most of the ports in In­dia, un­less an in­dus­try has a ded­i­cated port like Re­liance Jam­na­gar unit. The mar­ket is more ma­ture on the west coast as there is well de­vel­oped net­work of pipe­line and other modes of trans­port, but on the east cargo still moves through ports due to which stor­age ca­pac­ity is re­quired. Due to lack of pipe­line net­work, pe­tro­leum and other prod­ucts from Jam­na­gar unit come to Hal­dia by coastal ves­sels. Re­liance also im­ports avi­a­tion tur­bine fuel from Sin­ga­pore and Malaysia. The dis­tri­bu­tion net­work has still not reached an op­ti­mum level and there is scope for ca­pac­ity aug­men­ta­tion and new ter­mi­nals on the east coast.

Though In­dia im­ports ma­jor­ity of POL from the Mid­dle East, Latin Amer­ica, and Africa but In­dian oil ma­jors in a bid to re­duce de­pen­dency on the Mid­dle East have ac­quired eq­uity stakes in over­seas oil and nat­u­ral gas fields in South Amer­ica, Africa, South-east Asia, and the Caspian Sea re­gion.

While the ma­jor­ity of oil re­fin­ing ca­pac­ity, and oil and LNG im­ports are lo­cated on the west coast but many of them are fast ag­ing lead­ing to slower dis­charge re­sult­ing in con­ges­tion and de­lays. The west coast has an an­nual re­fin­ing ca­pac­ity of 63.7 MMT which falls short to meet do­mes­tic de­mand. On the other hand re­fin­ing ca­pac­ity of 88.2 MMT by pri­vate players in Gu­jarat mostly caters to ex­port mar­ket for prod­ucts such as naph­tha, mo­tor spir­its, and jet fuel to the UAE, Sin­ga­pore, Saudi Ara­bia, USA, Kenya, and the Nether­lands. East and north eastern parts of In­dia, cen­tral and north have in­stalled re­fin­ing ca­pac­ity of 49.4 MMT, 6 MMT, and 40.3 MMT, re­spec­tively. Con­sump­tion wise north­ern parts of In­dia top the list with 55.89 MMT, fol­lowed by 52.15 MMT in west, 46.67 MMT in south, and 22.28 MMT in north-east and east in FY2017-18.

Out of the to­tal vol­ume of 932.57 MT of over­seas cargo, liq­uid bulk cargo vol­ume was 353.96 MT in FY2016-17 at ma­jor ports. At In­dian ma­jor ports a ves­sel with liq­uid bulk has to tackle a pre-berthing de­ten­tion of about 1.62 days and turn­around time of about 3.49 be­fore it sails out. As a re­sult an im­ported liq­uid bulk car­rier is de­tained for about 5 days. Kandla which was once the de­fault hub for chem­i­cal and other liq­uid cargo im­port is los­ing out to other ports be­cause of lack of berths and de­lays in ves­sel turn­around time. Due to these fac­tors oc­cu­pancy level of liq­uid stor­age tanks at Kandla have come down af­fect­ing neg­a­tively its tanker tar­iff. On the con­trary, in its neigh­bor­hood ter­mi­nals at Hazira are flour­ish­ing due to ef­fi­cient and mod­ern fa­cil­i­ties and in 2017 alone 410 liq­uid car­ri­ers were han­dled there. The growth of liq­uid cargo seg­ment can be gauzed from the fact that ports like Hazira have 80 per cent oc­cu­pancy level and are look­ing to in­crease ca­pac­ity from 4.45 lakh kl to about 2.50 lakh kl tank in the com­ing 2 years.

Liq­uid bulk cargo is ma­jorly de­manded across 23 re­finer­ies and these re­finer­ies im­port about 4 mil­lion bar­rel of crude per day, and re­fine and sup­ply to do­mes­tic and in­ter­na­tional mar­kets. Though liq­uid cargo han­dling is pegged at CAGR of less than 5 per cent but the seg­ment has the po­ten­tial to grow at a much faster pace if ca­pac­ity con­strains at ports could be ad­dressed. There are very small num­ber of players who cater to the stor­age and trans­port needs of this niche but high vol­ume and fast grow­ing seg­ment. If we leave apart the ma­jor re­fin­ers, the liq­uid bulk im­port and ex­port is largely a trader-driven busi­ness where cargo vol­ume comes in frag­ments and in­con­sis­tently. Speak­ing about the trends, T Venkatara­man, MD, Goodrich Mar­itime said that in­stead of bulk ship­ments, de­mand for uni­tized form and ISO tanks is grow­ing. Im­porters are more keen to bring parcels of smaller size on de­pot-to-de­pot ba­sis where par­cel size of as lit­tle as 20 tonne is di­rectly de­liv­ered to their fac­tory.

Speak­ing about ca­pac­ity con­straints, Sa­jith Sreed­ha­ran, Deputy Man­ag­ing Direc­tor, BMT Con­sul­tants (In­dia), un­der­lined, “Sig­nif­i­cant in­crease in bulk chem­i­cal (in­clud­ing petro­chem­i­cal) trades has placed sub­stan­tial pres­sure on port in­fra­struc­ture which was al­ready lack­ing ca­pac­ity, in­clud­ing for stor­age. Uti­liza­tion rates for in­fra­struc­ture in ma­jor ports (mainly stor­age) is 80-90 per cent as op­posed to a more nor­mal 50-70 per cent. There is a need for ad­di­tional ca­pac­ity. In gen­eral, this in­cludes spe­cial­ist berths which usu­ally have far lower uti­liza­tion rates and spe­cial­ized han­dling equip­ment and stor­age.

The ma­jor gap is in­te­grated berth and stor­age ca­pac­ity, and this gap is of­ten caused as their owner and op­er­a­tor of the stor­age are dif­fer­ent. Chem­i­cals and spe­cialty chem­i­cals are par­tic­u­larly af­fected.”

Liq­uid cargo is very com­plex. A typ­i­cal liq­uid chem­i­cal car­rier can sail with 20 dif­fer­ent var­i­ties of prod­ucts, hence a port needs to have the re­quired in­fra­struc­ture to deal with it si­mul­ta­ne­ously. Chem­i­cal ma­jor Sa­sol used to bring 13-14 dif­fer­ent chem­i­cals in one ves­sel from South Africa to Kandla for about 23 re­ceivers but later it shunned the port be­cause of de­lays in dis­charge. Typ­i­cally in case of trader-driven spe­cial­ized chem­i­cal seg­ment it is im­ported in par­cel size of 500-2,000 met­ric tonne, and re­quires stor­age fa­cil­ity for 1-2 months at the port. Some of the other com­plex­i­ties of the trade are that turn­around time of a ves­sel also de­pends on the pump­ing ca­pac­ity of a ves­sel. Prod­ucts like ed­i­ble oil are high vol­ume but low mar­gin com­mod­ity, so in a bid to keep a check on freight cost older ves­sels are hired for haulage which have very slow dis­charge rate as com­pared to chem­i­cal car­ri­ers. And it leads to longer un­load­ing time.

Large in­dus­tries like Hal­dia Petro­chem­i­cals de­spite hav­ing own pipe­line net­work for dis­tri­bu­tion and stor­age fa­cil­ity are con­strained by chal­lenges at ports. Ashok Ghosh, Head (Plant & EVP), Hal­dia Petro­chem­i­cals,

shar­ing his ex­pe­ri­ence says that Hal­dia has draft lim­i­ta­tion, which re­stricts the size of ves­sels. Due to this 50,000 dwt ves­sels car­ry­ing feed stock car­ri­ers are called at Visakha­p­at­nam from where it is trans­ferred in smaller ves­sels of 25,000-30,000 tonne ca­pac­ity to Hal­dia. Var­i­ous liq­uid jet­ties have dif­fer­ent types of lim­i­ta­tions at Hal­dia such as it can han­dle cargo only in the range of 2,000-6,000 tonne, and the jet­ties are highly con­gested lead­ing to higher wait­ing pe­riod and de­mur­rage. Due to in­ef­fi­ciency freight cost for raw ma­te­rial im­port goes upto $55-60, and a draft of 13-14 me­tre could help di­rect ves­sel call and a sav­ing of about $30/tonne, and the amount is sig­nif­i­cant since the ca­pac­ity of the units is 2 mil­lion tonne of naph­tha. The plant aims to dou­ble its ca­pac­ity from 2 mil­lion to 4 mil­lion ton but due to the port ca­pac­ity re­stric­tion, the ex­pan­sion is not pos­si­ble. The com­pany is now ex­plor­ing op­tion to set up a unit at a new location like Andhra Pradesh or some other place in south which has a mar­ket po­ten­tial for its prod­ucts such as poly­mers.

The bright spots

One of the ar­eas which re­quire ca­pac­ity cre­ation is LNG fa­cil­ity at ports. Cur­rently, In­dia is the fourth largest LNG im­porter in the world. The coun­try un­der var­i­ous schemes is tar­get­ing to avail gas for do­mes­tic and in­dus­trial use. Cross coun­try pipe­lines are un­der im­ple­men­ta­tion and it will di­rectly boost gas con­sump­tion as a re­sult LNG im­port will grow. Cur­rently, In­dia im­ports 10 mil­lion tonnes of chem­i­cals and petro­chem­i­cals, which is likely to grow to 46 mil­lion tonnes by the year 2030.

More­over, in a bid to en­sure en­ergy se­cu­rity, na­tional gas grids are un­der ex­e­cu­tion at var­i­ous lo­ca­tions, and dou­bling of pipe­line net­work from 15,000km to 30,000km is un­der im­ple­men­ta­tion. While west­ern parts of In­dia have made sig­nif­i­cant progress in piped gas dis­tri­bu­tion, the next wave of growth in con­sump­tion will be from the east, south and north­ern parts of In­dia. Ports on the east coast need to chip in to meet the re­quire­ment.

PCPIR: The am­bi­tious tar­get that In­dia has set for it­self is to pro­vide gas to all house­holds and this re­quires sig­nif­i­cant in­vest­ment in LNG and POL han­dling ca­pac­ity at ports. Among the 4 ap­proved PCPIR projects, apart from Gu­jarat, the project in Andhra Pradesh is mak­ing steady progress.

The other two states Odisha and Tamil Nadu are also work­ing in the direc­tion of faster re­al­iza­tion of projects.

Hence, the ports on the east coast need to be ready to em­brace some ex­cit­ing times in liq­uid cargo busi­ness. In a bid to re­duce the dis­par­ity of gas ac­ces­si­bil­ity and LNG ter­mi­nals that is now con­cen­trated on the west coast, the Pe­tro­leum Min­istry aims to add ca­pac­ity on the east coast. The fo­cus is to im­prove pen­e­tra­tion of the piped gas net­work to boost de­mand in the eastern parts for do­mes­tic and in­dus­trial use. With Pe­tro­leum and LNG im­port on a growth tra­jec­tory, liq­uid cargo han­dling at eastern ports need to catch up with west coast ter­mi­nals to fuel oil and gas based eco­nomic growth.

In­dia con­tin­ues to stress on ad­di­tion of ca­pac­ity in Re­gasi­fi­ca­tion LNG ter­mi­nals and ad­di­tion of about 83 MMTPA in the next 10 years to ful­fil steady sup­ply in the do­mes­tic mar­ket. While the work is un­der progress to in­crease ca­pac­ity on the west coast, there are plans to in­stall about 10 MMTPA on the east coast as well.

With in­creas­ing cov­er­age and reach of nat­u­ral gas in­fra­struc­ture, there is an ef­fort to bridge the im­bal-

ance in gas con­sump­tion be­tween west­ern and north­ern parts of the coun­try and rest of In­dia. Nat­u­ral gas de­mand is pro­jected to reach 746 MMSCMD in FY2029-30.

Asian De­vel­op­ment Bank backed Eco­nomic Cor­ri­dor De­vel­op­ment is an­other thrust area which will fur­ther fuel LNG con­sump­tion in the eastern parts of the coun­try. Since the first phase of East Coast Eco­nomic Cor­ri­dor (ECEC) fo­cuses on the Visakha­p­at­nam-chen­nai In­dus­trial Cor­ri­dor (VCIC) cov­er­ing 11 dis­tricts in Andhra Pradesh and Tamil Nadu, gas con­sump­tion is head­ing for a steady growth due to re­stric­tion on coal im­port. While ports on the east coast are adding con­tainer han­dling ca­pac­ity to meet the re­quire­ment of pro­duc­tion clus­ters, it is time to add LNG han­dling ca­pac­ity to ful­fill the en­ergy re­quire­ment of an­chor and an­cil­lary in­dus­tries com­ing up in the cor­ri­dor. LNG re-gasi­fi­ca­tion in­dus­try is likely to in­crease from 47.5 MMTPA by 2022 from a cur­rent level of 22 MMTPA.

Chem­i­cal: In­dia be­ing an agrar­ian econ­omy, liq­uid chem­i­cal im­port for the agri­cul­tural sec­tor and fer­til­izer units will con­tinue to grow. More­over, bulk or­ganic and in­or­ganic chem­i­cal con­sti­tute about 5 per cent of the liq­uid cargo im­ports in In­dia. More than 60 per cent of In­dia’s chem­i­cal-based units are lo­cated around Vapi-bar­oda in­dus­trial belt, which has aided chem­i­cal han­dling at ports in Gu­jarat like Hazira. Ma­jor­ity of chem­i­cal in liq­uid form comes from the Gulf coun­tries. Ma­jor­ity of chem­i­cals are made from naph­tha and other down­stream prod­ucts of pe­tro­leum oil, and In­dia de­pends heav­ily on im­port from Iran and other Mid­dle East coun­tries. One day pre-berthing de­lay of a chem­i­cal car­rier could lead to a loss of about $20,000 de­pend­ing on the size of ves­sel. Apart from methanol, the CIF value for all other chem­i­cals is in the range of $600-1,800.

Chem­i­cal im­port has a CAGR of about 6-9 per cent. Growth in plas­tic and tex­tile like polyester yarn con­sump­tion cre­ates de­mand for chem­i­cal. In­dia still has a very low per capita chem­i­cal con­sump­tion due to which the growth in im­port is ex­pected.

Ed­i­ble Oil: In­dia im­ported about 15.6MT of veg­etable oil in FY2017-18 as com­pared to 15.4MT in FY201617. Lower do­mes­tic sup­ply keeps the mo­men­tum for im­port of veg­etable oil. And the trend is un­likely to change since In­dia’s agri­cul­tural sec­tor is strug­gling at sub 2 per cent growth. Palm oil ac­counts for the high­est vol­ume among veg­etable oil im­port, and a ma­jor­ity of it comes from Malaysia and ports on the east coast can tap this seg­ment. Im­port in this seg­ment has grown by 45 per cent in the last 5 years. In­dia’s monthly re­quire­ment is about 18 lakh tons and the coun­try main­tains a stock­pile for 30 days as it comes un­der nec­es­sary prod­ucts. Ed­i­ble oil im­port hubs are Kolkata, Kandla, and Mun­dra, and the bas­ket in­cludes re­fined and crude veg­etable oils like soy­bean and palm oil, and crude sun­flower oil. Soya oil is im­ported from Brazil and other latin Amer­i­can coun­tries. Palm oil comes from Malaysia and In­done­sia. Largest vol­umes of ed­i­ble oil comes through Kandla.

Way for­ward Liq­uid cargo is one seg­ment where ports and ter­mi­nals have been reg­is­ter­ing steady growth (CAGR of 0.38 per cent in the last decade). In case of ma­jor ports the share of liq­uid cargo has grown to about 38 per cent in FY2017-18 as com­pared to 33 per cent in FY2016-17.

In­dia ful­fills about 86 per cent of crude, 70 per cent of nat­u­ral gas, and 95 per cent of cook­ing gas re­quire­ment through im­port, hence the de­mand for liq­uid cargo han­dling, stor­age and dis­tri­bu­tion at ports and hin­ter­land will con­tinue to regis­ter an up­ward trend. Apart from POL and LNG, ed­i­ble oil and chem­i­cal im­ports are go­ing to sup­ple­ment fur­ther. While govern­ment-backed cross-coun­try pipe­line net­work is on the right track, there is an op­por­tu­nity for more en­trants from the pri­vate sec­tor to com­ple­ment with liq­uid cargo han­dling, stor­age and dis­tri­bu­tion. There is huge ca­pac­ity con­straint in trans­port of liq­uid cargo from shore to the fac­tory or hin­ter­land in a safe and ef­fi­cient man­ner. Most the cargo is hauled by trucks, hence there is op­por­tu­nity to tap this seg­ment. Suc­cess lies in faster turn­around of ves­sels thus low­er­ing or elim­i­nat­ing de­mur­rage.

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