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Prosad Dasgupta, Former CEO and MD, Petronet LNG

09 Aug 2011

The High Power Group of Ministers (GoM) study 'Hydrocarbon Vision 2025' says that as much as 45 percent of the country's energy needs would be met by the oil and gas sector with some possible interchange between the two.

India's energy mix at the moment is in variance with global energy mix. Globally, 24 percent of energy requirement is met through natural gas, but in India, it's a mere 10 percent. For India, it's predominantly coal that still continues to enjoy a lion's share of 52 percent, most of it in power generation. The oil, which comes next, constitutes another 32 percent. The current GDP growth of seven to nine percent translates into overall energy demand growth at a CAGR of 7.50 percent.

However, the uncertainty surrounding domestic production coupled with complexities of LNG supplies calls for a closer look at identifying possibilities, challenges, constraints and possible solutions that gas offers. InfralineEnergy's Sangeeta Tanwar attempts to decode the issues and the dynamics of the gas industry through a dialogue with and Dasgupta.

How do you see India's gas market?

Any discussion regarding the gas scenario in the country has to begin by looking at domestic gas scenario because liquefied natural gas (LNG) is always going to supplement the deficit created by shortage of natural gas. Also, we must remember that LNG is also natural gas and the most expensive natural gas.

The traditional source of natural gas for India has been Bombay High. About three decades ago, Bombay High was producing 110-115 million standard cubic tonnes per day of natural gas. Today it produces 55 MMSCMD of natural gas.

Oil and Natural Gas Corporation (ONGC) is producing 55 million standard cubic metres of natural gas. India had marginal successes in Panna-Mukti and Tapti gas fields (PMT). There had been smaller fields like Lakshmi field in Gujarat, until Reliance Industries' eastern offshore KG-D6 basin came in 2002 and started producing in 2009. The KG-D6 gas field almost progressively increased natural gas availability first by 20 million standard cubic metres, then to 40 and progressively natural gas supplies from the field increased to 60 million standard cubic metres. However, the production from the field started declining in 2010-11 with current production from the field standing at 48 MMSCMD.

"...six months back both Petronet LNG and Shell Hazira were not in a position to utilise their full available capacities. The constraint in the gas value chain in India six months ago was pipeline infrastructure."

Therefore, taking all these domestic supplies into account, the total production since the time KG-D6 came into picture was nearly 125 million standard cubic metres per day of natural gas. The natural gas production, as a result, almost doubled compared to what progressively ONGC was doing.

With introduction of LNG in 2004, Petronet LNG Limited came into being followed by Shell Hazira LNG Terminal in 2004-05.

Petronet LNG and Shell Hazira capacity-wise share another 53 MMSCMD of natural gas between the two of them. Petronet LNG can today re-gasify about 11 million tonnes per annum, which is about 44 MMSCMD of natural gas. Shell Hazira can do another 13 MMSCMD of natural gas, which is about three million tonnes per annum following their expansion.

The long-term supplies were about 28 MMSCMD. The country imports seven and half million tonnes per annum from Qatar. The rest three and half million tonnes per annum of gas in Petronet LNG and another three in Shell Hazira are all being operated depending upon the dynamics of demand and supply through spot markets or short-term contracts. It is in this backdrop that Petronet LNG recently did a short-term contract of one million metric tonne per annum of natural gas.

What has been the recent trend in RLNG offtake? We understand that at the moment, both Dahej and Hazira are running at 90 percent capacity.

In the business, nobody plans for 100 percent. However, they were unable to use this much capacity even six months back. These are the constraints of an LNG terminal or constraints of the gas value chain. And this is the reason, why six months back both Petronet LNG and Shell Hazira were not in a position to utilise their full available capacities. The constraint in the gas value chain in India six months ago was pipeline infrastructure.

The demand projections for gas to the tune of 160 MMSCMD would mean 154 million tonne of LNG (seven and half tonne coming from Petronet LNG and three million tonnes contributed by Shell Hazira). Add to this what Bombay High and KG-D6 are producing and with PMT taken together, the maximum that we can do is 175-180 million standard cubic metres of gas.

Therefore, when KG-D6 was producing full capacity, which as of today is 48 million cubic metres per day - being a gas source cheaper than LNG, it (natural gas) went first. As a result, Petronet LNG was struggling to use up to about 30 to 32 MMSCMD of natural gas, so was Shell Hazira, which was only doing about 9 -10 MMSCMD of gas. Couple of months back, both of them had gone down to almost 24 and seven MMSCMD of gas, respectively, when KG-D6 was producing to full capacity.

"We may be expressing dismay over declining production from KG-D6 fields, but we must remember that such drop in production is a very natural phenomenon of oil and gas business."

Once a plant gets hooked onto a gas source, particularly those, which do not have a price barrier such as power and fertiliser or those which can pass on the burden to consumers like TV tube manufacturer, glass manufacturer, ceramic tile manufacturer or city gas distribution (CGD), it's very difficult for them to look at options other than natural gas (CGD constitutes nine percent of gas supply). The rest of the industry accounts for another 10 percent. Though power may not be coming at this price, though, I believe going forward, no option is available.

Why is it that today Petronet LNG or Shell Hazira cannot increase LNG supplies, while there is demand?

The reason for this is that the maximum number of vessels that Petronet LNG can berth in a year is 155. Out of 365 days in a year, 20 days are spring tide days during which Gujarat Maritime Board does not allow any vessel to berth on its coast. So, if you knock off 20 days of 365 days, you are only left with 345 days. Now, when you are planning for 345 days, LNG is not a product that can be simply bought off the shelf as you walk into a departmental store. In LNG business, you need to do annual planning, you plan for three months and place an order. You have to be absolutely sure that you won't fail in lifting the cargo because once you have placed an order you cannot refuse. The planning is always done at 90 percent of capacity. Keeping this margin in mind, if you knock off 10 percent more, out of 345 days you are left with 310 days.

The smallest vessel used for carrying LNG is capped at 137 thousand standard cubic metres of gas. Petronet LNG has two such vessel called Disha and Rahi. In addition, there is another vessel called Aseem, which is slightly bigger than Disha and Rahi. These three dedicated vessels owned by Petronet LNG together bring about seven and half million tonnes of gas from Qatar. Each vessel regardless of its size takes 24 hours to berth, to unload, unberth and go away. There is no way that you can shorten this process cycle. At best, you can save a couple of hours here and there, but this really does not add up to much, because you have to again wait for the low tide to come in for the vessel to unberth and go away.

Likewise, the next vessel cannot come in until there is low tide, which has a gap of 12 hours. It's simple mathematics. If you divide these 310 days with two days that each vessel takes to unload, unberth, you will arrive at the magic figure of 155 vessels.

Even if we stretch the argument a bit further, then also weather permitting at best, Petronet LNG will be able to re-gasify only 160 cargoes with give and take of one or two cargoes here and there. Out of these 160 cargoes, 120 cargoes comprise LNG from RasGas which is seven and half million tonnes. That leaves you with 40 cargoes only. Even if Petronet LNG uses different configuration of vessels, how large a vessel they can use would depend on that particular time and the storage capacity they would have at that time as the cargo has to be unloaded in the tank.
Can we increase the capacity of Dahej terminal beyond 155 (vessels)?
There have been suggestions that we may consider employing Q-Flex to transport LNG. Now consider a situation, where let's say a Q-Flex brings about 210 thousand tonnes of LNG against the normal load that Disha and Rahi bring. Petronet LNG has a capacity of 64,000 tonnes and with those numbers you will land up in a situation where you may start paying demurrage for keeping the ship waiting because you do not have the required tank capacity for storage of LNG. Even if you take an average of 80 or 85 thousand tonnes in 40 cargoes, you are just about three million tonnes. So seven and half and three comes to 10.5 million tonnes.
What are the uncertainties surrounding LNG business?

Currently available LNG facility is being operated at maximum possible capacity simply because of decreasing production from KG-D6 fields. The production from the gas field has come down to 47 MMSCMD. Now this is a considerable drop of as much as 13 million standard cubic metres.

We may be expressing dismay over declining production from KG-D6 fields, but we must remember that such drop in production is a very natural phenomenon of oil and gas business. The fact is that the pressure in the ground below which could be in the depths of 3,000-5,000 metres progressively drops and it drops for various reasons for which most geologists do not have an answer.

"We need to understand that LNG is also not available, it is available today but might not be available five years from tomorrow. If you do a LNG deal today, you probably would be ready to use it say five years later."

For example, take the earthquake in Sumatra and Indonesia, which caused tsunami. One saw it happening there and therefore, one can say that it was the cause of tsunami. However, nobody can tell what kind of seismic changes or chain reaction had happened under the sea. The moment such activity happens under the sea, oil and gas starts flowing.

We have curious cases all around us. If you look at Iran, Abu Dhabi, they have lot of gas and predominantly they use huge volume of their gas for injecting it back into the earth so that it pushes oil up. It may be noted that Iran is likely to use seven billion cubic metres of gas for pushing oil up.

Talking about our own experience, the country had to face crisis with power and fertiliser utilities in the past because they would come and tell you that they have cheaper sources of gas available and therefore, they would take that first. In such a situation, where do a re-gasification facility unload its vessels?

And the situation could suddenly look terrible in case of a downstream problem. Even if one power plant or fertiliser plant closes down, natural gas remains in the pipeline and you stop pumping in the natural gas because you cannot increase the pressure. And natural gas as such cannot stop because capping out a well is very difficult. So, the first thing, that one does in such a situation regardless of price is to stop Petronet LNG and Shell Hazira because in their case gas remains in liquid form in the tank.

Going forward, what are the possible solutions for addressing the LNG supply-demand issue?
We need to understand that LNG is also not available, it is available today but might not be available five years from tomorrow. If you do a LNG deal today, you probably would be ready to use it say five years later. Well, somebody has to be more transparent and say look at LNG as a possible option, otherwise you will miss out on both.

(InfralineEnergy thanks Prosad Dasgupta, Former CEO and MD, Petronet LNG for sharing his valuable insights with our readers. The column 'In Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)