Apr 6, 2012

India’s LNG imports will rise steeply


India’s LNG imports will rise steeply

 
AK Balyan receiving a trophy and citation from Indian Minister of Petroleum and Natural Gas Jaipal Reddy. (Petronet)
AK Balyan receiving a trophy and citation from Indian Minister of Petroleum and Natural Gas Jaipal Reddy. (Petronet)
India’s domestic gas demand is rising fast, even as local supply remains woefully insufficient to meet its requirements. Indian LNG imports are, therefore, expected to increase sharply over the next few years. Currently, India is the world’s eighth-largest importer of LNG, but it is likely jump into the top five in the near future.
One key player in bringing gas from overseas will be state-owned Petronet LNG, the country’s largest LNG importer. In New Delhi last month at the Asia Gas Partnership Summit, Petronet’s Managing Director and Chief Executive Officer AK Balyan spoke to Interfax about the prospects for India’s LNG market and how Petronet is positioned to benefit from growth in demand.
Interfax: How do you assess the business prospects of the company?
AK Balyan: India’s domestic gas output has not reached the levels expected. There has been a drastic fall in output from Reliance Industries’s KG-D6 fields, while explorer Oil and Natural Gas Corp. (ONGC) continues to rely on assets that are depleted and aging. Given such a scenario, the dependence on imported LNG is going to rise, especially for power, fertiliser firms, city gas distribution and industry, which is good news for our viability and revenues. Our estimate is that LNG will form nearly 40% of total gas supply in India in the next three years from the present 25%. This is a very steep increase that will benefit us.
Interfax: What are the overseas LNG supply options that Petronet is seeking?
AB: We receive 7.5 million tons per annum (mtpa) of LNG from Qatar’s Rasgas under a long-term deal at Dahej. We also have a contract to purchase 1.5 mtpa of LNG from Australia’s Gorgon project from 2014 that will be regasified at Kochi. Given the continuous rise in demand, we are negotiating a long-term contract with Qatar for an additional 2-3 mtpa. We are also in discussions with Russia’s Gazprom.
If the need arises we will be in a position to source gas from America, Angola, Mozambique and Russia. Over the longer term, we are also looking to pick equity stakes in upstream exploration assets in joint ventures in order to build a stronger gas resource base. We are studying projects in Russia and Africa with good prospects and value. We have bid for a minority stake in Russia’s Yamal LNG project, in partnership with Gail and ONGC.
Interfax: What are the infrastructure plans of Petronet LNG?
AB: We are looking to tap the expected rise in LNG imports and have put in place expansion plans. The 5 mpta Kochi terminal in Kerala will be operational by December this year while the capacity enhancement at the 10 mtpa Dahej terminal (in the western state Gujarat) to 15 mtpa will be implemented by 2014. We are also looking at the possibility of a third plant on the east coast to feed south India, which is industrialising at a rapid pace. We have sanctioned French consultant Tractebel to prepare the detailed feasibility report in Andhra Pradesh. We are conscious of competition from other players in the field (Reliance, Royal Dutch Shell, Reliance Power, Gail and Indian Oil Corp.) and are, accordingly, moving at a fast pace.
Interfax: Is there a risk of over-capacity?
AB: India’s LNG imports have nearly doubled over the past year. In another year or so they may cross 100 million cubic metres per day. Presently, India’s LNG import capacity is insufficient to meet the projected demand for gas. In my opinion, the capacity needs to rise by at least three or four times the present levels to about 45-50 mtpa in the near future. Right now the problem is of too little rather than too much. Given such a situation we are looking at a longer term plan to upgrade the Dahej terminal to 50 mtpa.
Interfax: Has government policy been conducive to gas imports?
AB: The government has been in sync with reality. This has been reflected in the annual budget that removed the 5% customs duty on LNG imports for power entities that are in dire need of the fuel. This will be counter-inflationary and will also boost demand for gas, which is a clean source of energy. The finance ministry has also made oil and gas/LNG storage facilities and gas pipelines sectors eligible for additional funding, which is a positive step. There are also efforts to negotiate cross-country gas pipeline projects to ease the situation.
Interfax: Do you think India is paying too high a price for LNG?
AB: The prevailing rate of $14-16 per million Btu (MMBtu) at India’s west coast is higher than normal. The rise happened following the Fukushima crisis and the tsunami in Japan. Given depressed demand in Europe and rising shale gas output in North America, I expect the price of LNG should stabilise in the range of $9-10/MMBtu as it was earlier. This is the price that reflects the prevailing market demand-supply conditions and is being quoted by India in international negotiations, including proposed pipeline projects.

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