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Country needs more LNG infrastructure to meet demand, Dr A K Balyan, MD & CEO, Petronet LNG Limited (PLL)

30 Aug 2012

Petronet LNG Limited (PLL), the biggest importer of LNG in the country, has been in the news for more reasons than one. PLL is taking rapid strides towards creating LNG infrastructure in the country and is in the process of setting up its third LNG terminal on the East Coast. The company’s MD & CEO, Dr A.K. Balyan, in a freewheeling interview with Infraline Plus’s Neeraj Dhankher, talks on the company’s plans to tap LNG markets in the USA as well as Africa as well as well as plans to increase presence in domestic gas marketing. The following are the excerpts:

How do you look at the LNG market in India in next 10 years, taking into account inflow of TAPI gas as well as increase in domestic production especially from KG-D6 field?

Sometime back we had done a detailed analysis on the short term and long term perspective of gas demand supply in the country. All the players associated with the gas business relating to production, marketing, pipelines and transportation, including major international consultants discussed the likely gas scenario in the future. The demand supply analysis was conducted for the short term (for a period of five to six years) and long term (up to 25 years). A realistic five-year scenario indicated that while demand is going to grow rapidly, the domestic production will increase only marginally. Even after taking into account the gas from likely future discoveries, it would still be short of demand in the country. So in about six years it is expected that the demand may almost double and the gap in demand and supply would be around 150 to 200 mmscmd.

I must point out that there is a price sensitivity to gas demand. But even if you discount demand by 25% there is still huge demand. In the long term, the demand figures are even larger. So if demand is high and growing, as a country what options do we have to meet this demand? First option is to expedite domestic gas production through NELP, and also arrest decline in production. The other option is to import more gas for which country needs more LNG terminals, more transnational pipelines.

TAPI as I see is a big project, fraught with its own complexities and issues. It is a long lead project delivering around 35 mmscd of gas which will not meet the entire requirement. We must look at increasing the capacity of the pipeline; otherwise it will not make a significant difference. The country would need more terminals for LNG import, along with TAPI.

Do you think the LNG business in India will continue to thrive once domestic gas prices are revised and aligned to the market in the future?

India is a huge country and making affordable energy available to its 1.2 billion people is really a big challenge. As a developing economy India has to integrate further with other economies of the world particularly with major energy producing economies. In our opinion, issues like pricing of energy whether coal, domestic oil & gas , imported gas has to be addressed in line with India’s countries economic development and prevailing international scenario in the energy sector. We believe that India would continue to import increasing quantities of gas in coming years to meet the growing demand.

Apart from Qatar, which are the other sources of LNG that you are exploring? Do you think USA, today, presents an opportunity waiting to be explored?

There are many other countries where significant gas reserves have been discovered and have plans to put new LNG projects. Today, Qatar is leader in the world with a capacity of 77 MT of LNG per annum. It is believed that Australia, in next 8-10 years, may surpass Qatar as number one in LNG production. A number of projects are coming up there. In Africa, there has been huge gas finds and number of LNG projects are being conceptualized.

USA, which used to be an importing country, may turn in to an exporter by 2017-18. It is not clear as to how much gas would be permitted to be exported from US but there are around 14 companies which have applied for LNG liquefaction & export license which are in different stages of approval. US LNG may go to only FTA countries. However, details of export mechanism, taxes etc., are not yet known. Russia is also coming up with some major projects. So we see a number of new sources are coming up which will lead to good availability of LNG in coming years. Lastly Iran has huge gas reserves and is constructing a LNG Liquefaction Terminal.

We feel that the current long term LNG prices do not reflect the true demand supply scenario. With all these projects coming up, we think LNG prices should move towards more realistic, softened prices closer to the pre-Fukishima accident price regime.

Any other suppliers you are in talks with?

We have signed a Heads of Agreement with Gazprom, Russia and are currently in negotiation with them on pricing for supply of 2.5 MMT for a period of 20 years.

We are also looking at opportunities in the US and Africa. Mozambique is the new opportunity developing  and Angola has already started LNG production.

Africa has strategic, logistic advantage for Asian markets including India over European market.

There has been pricing issue over the 7.5 MMTPA of long term LNG contract with RasGas. At what price is it being purchased and what is the issue and status? Do you also plan to enter into a 3.5 MMTPA contract for Dahej terminal?

We have no problems; it is one of the finest operating contracts in the world. The price is very favourable for India, with a landed cost of around $9 per mmbtu. We are also negotiating for additional supply between 2-3 MMT.

Who are your major consumers of LNG so far?

Majority of gas is sold back to back to three offtakers, GAIL, IOC and BPCL. We also sell to Reliance, Essar and GSPC as per requirement on similar back to back arrangements.

Do you have plans to venture into direct marketing of LNG to end customers?

PLL is now permitted to market LNG. We work in close coordination with our Promoters and do not have any conflicts. We are focusing on areas which are not connected by pipelines in isolated and remote locations and market our product to bulk consumers in these areas. We have been selling gas through specially designed trucks for last 5 years within 500 km. A small storage and vaporizer of suitable capacity is constructed for captive use in the consumers’ premises.  

Presently, small quantity of LNG goes by trucks (around 5 trucks a day of 10-12 tonnes a day) but we are enhancing the capacity, more trucks will be put in operations at Dahej. We propose to start LNG sales by road at our Kochi terminal also.

By when is the expansion of Kochi terminal from 2.5 to 5 MMTPA likely to be completed? What is the status of work on the project?

The construction of the terminal is as per schedule and will be ready to operate full 5 MMTPA capacity by November 2012. GAIL is expediting the Phase-I (around 50 km) pipeline connecting nearby customers, but Phase-II pipelines (Kochi-Mangalore-Bangalore) is delayed which is a matter of concern.  Full capacity utilization of the terminal can be expected only after Phase II pipelines are commissioned by GAIL.

Do you plan to set up any more terminals in the future?

Yes, Board has approved our first facility on the east coast at Gangavaram, which will be our third LNG terminal. We have signed term sheet with Gangavaram port. Detailed Feasibility Report has been completed, and environment and other studies are in progress. Project is well on track. Keeping in mind a construction period of 36 to 40 months, the terminal should be commissioned by 2016.

The LNG import duty has been waived only for those companies which are directly producing power. What are your comments on this decision?

Yes, import duty for power producers has been withdrawn by Government. Implementation of this benefit looks complex. It is a good initiative but may have limited benefit. For us, there is no impact, it’s a pass through, but for power producers it would be beneficial.

The Oil Ministry has refused permission to public sector oil companies for acquiring Asian Development Bank's stake in PLL so as to keep the nation's largest LNG importer a private company. What are your comments?

The promoters are quite aware of how the company was incorporated, the provisions in Share Holding Agreement and the premise of unique Equity structure. They will take an objective view in line with the company’s working.

(InfralineEnergy thanks Dr A K Balyan, MD & CEO, Petronet LNG Limited (PLL) 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.)