In­dia mov­ing to gas based econ­omy? Trend de­coded

IN MAY, IN­DIA SAW ITS LNG IM­PORTS GROW­ING BY ABOUT 43.38%. ALTHOUGH VOL­UMES ARE IN­CREAS­ING, IN­DIA STILL HAS A LONG WAY TO GO FOR LAST MILE CON­NEC­TIV­ITY OF GAS GRID. Prabhat Singh, man­ag­ing di­rec­tor and ceo, Petronet Lng, TALKS ABOUT IN­DIA’S GAS MAR­KET IN

Resource Digest - - CONTENTS -

DO YOU THINK IN­DIA IS GRAD­U­ALLY MOV­ING TO­WARDS A GASBASED ECON­OMY? There are two sides to this story – one is the de­mand side, which is ob­vi­ously linked to the price and the se­cond is the in­fra­struc­ture avail­abil­ity. Again to be­come a gas based econ­omy – there are two fac­tors — how much gas is do­mes­ti­cally pro­duced and how much is im­ported. Now, in­fra­struc­ture and pric­ing is rel­e­vant for both of them. Fac­tual, po­si­tion to­day is that there are a lot of ef­forts by the govern­ment to move to­wards the gas based econ­omy by try­ing to im­pro­vise and in­cen­tivise the pro­duc­tion shar­ing con­tract of the ex­plor­ers. This would im­prove the do­mes­tic avail­abil­ity. SO, WHAT ROLE WOULD LNG PLAY IN THE GAS BAS­KET? Look­ing at the im­ported side, to­day, we are im­port­ing about 40-45% of our re­quire­ment, which is go­ing to in­crease fur­ther. Now, to im­port ev­ery unit of gas, the coun­try re­quires in­fra­struc­ture. We are im­port­ing about 14.5 mil­lion tonnes of LNG (an­nu­ally), and there are about 23-25 mil­lion tonnes of re-gas­si­fi­ca­tion ter­mi­nals. But, the Kochi ter­mi­nal is not con­nected to grid and Dab­hol does not have break­wa­ter fa­cil­ity. WHAT IS THE WAY OUT FOR THE KOCHI TER­MI­NAL? The Prime Min­is­ter has taken up the Kochi pipe­line on top pri­or­ity. The State (Ker­ala) has agreed to of­fer sup­port. On June 24, GAIL has ac­cepted bids to lay a part of the pipe­line, and this

THE DA­HEJ TER­MI­NAL IS OP­ER­AT­ING AT TOP CA­PAC­ITY OF 120%. NOW, CUS­TOMERS ARE ASK­ING FOR MORE BUT PETRONET DO NOT HAVE CA­PAC­ITY AT DA­HEJ. NOW, DAB­HOL IS CLOSED BE­CAUSE OF MON­SOON. AT THE HAZIRA TER­MI­NAL – RIL AND GSPC ARE TAK­ING LOT OF GAS

time com­pe­ti­tion is rea­son­ably high. The Ker­ala govern­ment and Kochi Port Trust are los­ing on rev­enue in ab­sence of evac­u­a­tion fa­cil­ity. The pipe­line would be a re­lief for them. If the pipe­line for the sec­tion comes, con­nect­ing Man­ga­lore and touch­ing Coim­bat­ore, the ca­pac­ity util­i­sa­tion of Kochi ter­mi­nal would go up to 40-45% from 5% now.

BUT, WHY CON­SUMERS ARE NOT BUY­ING LNG EVEN WHEN IT IS CHEAPER?

The Da­hej ter­mi­nal is op­er­at­ing at top ca­pac­ity of 120%. Now, cus­tomers are ask­ing for more but Petronet does not have ca­pac­ity at Da­hej. Now, Dab­hol is closed be­cause of mon­soon. At the Hazira ter­mi­nal – RIL and GSPC are tak­ing a lot of gas. Do­mes­ti­cally, there are around 80-85 mm­scmd of gas. We are im­port­ing around 40-45 mm­scmd. There are no ter­mi­nals in East Coast.

IN­FRA­STRUC­TURE OR DE­MAND- WHICH DO YOU THINK IS RE­QUIRED FIRST?

If you have pipe­line ca­pac­ity of more than 300 mm­scmd and ac­tual con­sump­tion is 120-130 mm­scmd, you end up run­ning at lower ca­pac­ity. Glob­ally, in­fra­struc­ture is al­ways over­hang than con­sump­tion. Glob­ally, re-gas­si­fi­ca­tion fa­cil­i­ties are op­er­at­ing at 36-37% ca­pac­ity. But, all projects are run­ning and eco­nom­i­cally vi­able. The point to look at is the value of over­hang ca­pac­ity at $/mbtu is less than 2 cents. There­fore, if you are able to gar­ner a good cargo, you can run your ter­mi­nal. The in­cen­tive is to cor­ner a cargo at lower price. Govern­ment should make more ef­forts to set up in­fra­struc­ture. If you really aim to be a gas econ­omy, in­fra­struc­ture is a must. We had laid the HVJ (Hazi­rav­i­jaipur-jagdish­pur) pipe­line in 1987 spend­ing R1,800 crore. To­day, in 2016, the pipe­line sup­port in­dus­try is worth more than Rs 1 lakh crore. BUT IN­VESTORS ARE NOT WILL­ING TO SPEND FOR IN­FRA­STRUC­TURE? The in­vestors are ready for in­vest­ment. What they want is to be guarded at least for the first five years to­wards ca­pac­ity util­i­sa­tion. For in­stance, Sin­ga­pore LNG ter­mi­nal is 6 mtpa, and fur­ther ex­pand­ing it to 11 mtpa. But, the ca­pac­ity util­i­sa­tion is around 3 mtpa. The bill for gap of ca­pac­ity util­i­sa­tion is foot by the state govern­ment. For at­tract­ing car­goes which are dol­lar sen­si­tive, you have to give few cents to the re-gas­si­fi­ca­tion or the in­fra­struc­ture per­son. Once the pipe­line is in place more and more peo­ple would start gas util­i­sa­tion.

ARE YOU RE-DO­ING THE CON­TRACT WITH AUS­TRALIA’S GORGON PROJECT? The gas sce­nario mar­ket has ac­tu­ally un­der­gone a paradigm shift. Mar­ket ab­sorp­tion of vol­ume is a ne­ces­sity and that is how things would be worked around. We are ac­tu­ally try­ing to un­der­stand the off tak­ers and what is their po­si­tion. Exxon also re­alises what is the mar­ket. In­dia needs gas and vol­umes are not are a prob­lem. YOUR OUT­LOOK ON GAS PRICE? At least for the next four-five years, gas price would be quite in con­trol. The way gas is com­ing out of shale, it has put a dif­fer­ent flavour to the mar­ket. It has ac­tu­ally given a tool in the hand of pro­ducer to ac­cess the mar­ket. Vol­umes are con­tin­u­ously com­ing into the mar­ket. Ac­cord­ing to re­ports, there are 400-500 which can be pro­duced at less than $4/mbtu, while there are about 50 tcf of gas which could be pro­duced for free. You are plan­ning to set up a re-gas­si­fi­ca­tion ter­mi­nal in Sri Lanka and also in Bangladesh?

We have pro­posed set­ting up a 1mil­lion-tonne ter­mi­nal in Sri Lanka. We are also go­ing to set up a ter­mi­nal in Bangladesh. Why should we re­strict to In­dian shores? We have al­ready sent a pro­posal to Bangladesh. They re­quested for a ter­mi­nal of 3.75 mil­lion tonnes, but we have told them that we would set up a 5-mt ter­mi­nal. Plus, it would be ex­pand­able.

PRABHAT SINGH, MAN­AG­ING DI­REC­TOR AND CEO, PETRONET LNG

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