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P Sugavanam, Chief Executive Officer (CEO), SEL

01 Jul 2014

Swan Energy Limited (SEL) is developing an LNG Floating Storage & Regasification unit (FSRU) in Pipavav, Gujarat, with a capacity of 4.5mn metric tonne p.a. (mmtpa) of LNG imports. This would be used to source gas requirements for the company’s energy initiatives. SEL’s Chief Executive Officer (CEO), P Sugavanam, speaks to Neeraj Dhankher on his outlook on the LNG industry in India and the company’s future plans in this segment. Excerpts:

Please outline your outlook for the LNG sector in India. We have seen that this is an emerging area in the oil and gas segment as domestic gas production has hardly kept pace with burgeoning demand.

The demand projection for gas is not our cup of tea. We don’t do it. It has been done by many others so we normally follow that. So we have not done any specific study on demand supply. We are sure that gas is dearer in India and it cannot come through any other means than LNG. All pipelines that we are talking about, whether Turkmenistan- Afghanistan-Pakistan-India (TAPI), Iran-Pakistan-India (IPI) etc is going to be a tough call unless we improve our relations with the neighbours. So if gas is not going to come in gas form, then the next form is only LNG. India can never be self sufficient in gas, definitely not. With that being the case, we have to import gas.

But with better incentives to explorers in form of a higher gas price, don’t you feel that domestic gas production can indeed be spruced up?

It (domestic gas production) will definitely go up with new gas pricing, but it will never be sufficient for India. It can be only 30 to 40 per cent maximum of consumption.

With the new government signalling its intention on unleashing reforms in other energy segments such as coal, don’t you feel that increase in domestic coal production will compensate gas requirement to some extent?

As of today, no one is talking about environment. Everybody wants to only boost up the industry. So a day will come when your GDP grows by more than 8 per cent and then, again, there would be talks about environment. That time gas will be talked about again. As of now, share of gas in overall energy basket is about 8 per cent to 9 per cent and it will go up to 20 per cent surely.

The PNGRB had earlier come out with its guidelines with respect to registration of LNG terminals which mandated that some part of a terminal’s capacity should be available for open access. What are your comments on the same?

It (open access in LNG terminals) is feasible, but the only thing is that where there are lot of new investments being done, people are expecting equity gas. So all those who are not into gas trading as of now need regas terminals. Definitely, third party terminal is a very good business. It is possible. But without the support of government and public sector, it is not going to be that easy as of now.

With the new government at the Centre, what are your expectations for the energy sector?

There will be lot of changes and things are definitely going to improve. Narendra Modi is a far sighted man so hopefully, lot of policy changes will be there especially in oil and gas sector. If you see, much before the gas policy of Central Government came in, Gujarat had announced its LNG policy where 40 mt import of LNG is coming only in Gujarat. That is a forward looking policy. With that being the case, a lot of boost will come in gas business definitely.

Do you feel the need for regulating LNG industry in India as of now?

As of now I don’t think they are going to regulate LNG except for what they have done so far. Regulation will come in when more terminals are going to come up. As of now, integrated terminals are there mostly and they are able to utilise their own terminal. But when more number of terminals come up as third party terminals then regulation is a must. For example, in case of laying of gas pipelines earlier, PNGRB came very late and only now they have started regulating the gas pipelines. Similarly, with more number of LNG terminals coming in, probably that is the time to regulate, not in initial stage.

What infrastructure constraints are being faced at present when it comes to evacuating LNG from terminals?

There are problems. In east coast, there are no pipelines, except the East-West pipeline owned by RGTIL. Another one is being done by GSPC from Mallavaram in Andhra Pradesh to Bhilwara in Rajasthan. Today, Gujarat is one state which has developed its own gas pipelines of about 3,000 km, and they are talking of 13,000 km overall in India. That is the kind of infrastructure they have developed.

How did your company venture into LNG tolling terminals?

It has got a long history. We were more concerned with environmental problems and we wanted to convert some of the coal-based thermal power plants to gas-based. That time gas prices were around $5 to $6 per mmbtu. A combination of local price of $4 and $7-8 of imported gas and 60:40 ratio or 70:30 ratio, it was feasible to generate power. But with increase in gas prices, that has gone in the backyard and we are going only with tolling terminals.

You are already in the process of developing an LNG Floating Storage & Regasification unit (FSRU) in Pipavav, Gujarat with a capacity of 4.5 mmtpa of LNG imports. What is the update on the project? Also specify your future plans in this regard.

This project will be operational in 2017 at a cost of $700 million. In the energy sector, this is the only project as of now. Probably, we may go for one more floating terminal if the demand picks up. Otherwise, the current project will be expanded to 10 mmtpa. We have got permission from environment ministry for 10 mmtpa. So we will expand this project’s capacity first. The expansion can be completed in a period of one year, whenever required. After that, in case there is more demand, we will put up further.