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David Glendinning, President, Teekay Gas Services

13 Mar 2013

India will soon be a poster child for floating LNG terminals

Some years back few would have thought of setting up offshore floating LNG storage and liquefaction facilities. But not anymore. In an interview with Neeraj Dhankher, Teekay Gas Services’ President, Captain David Glendinning talks of how the concept of a floating storage and regasification unit is fast catching up among LNG players across the globe. More so in India where LNG business prospects are on the boil and the situation calls for innovative and quicker solutions to crack the LNG business code. Excerpts:

LNG has the potential to become the most important business segment in the oil and gas  sector in India today. How do you perceive its growth in India?

LNG will continue to grow throughout the world not just because there is plenty of it but also because it is relatively cheap, easily transportable and environment friendly. On the flip side, we are not sure on what’s happening on the shale gas front. It is good for LNG markets when it is exported from the US, but not when it is developed in China, India or Argentina for instance. But I think these sources of shale gas may take some time to develop. In India, the demand for gas is growing by the day due to rapid urbanization and government policies promoting use of gas for producing energy. This can be met only through import of LNG.

What business opportunities can India offer on the LNG front?

In India we are keen to follow an inclusive approach where we share our expertise, transfer knowledge and use as much Indian content as possible. We are prepared to create joint ventures and use Indian resources. We have similar approach in place for Indonesia, Angola, Yemen and Qatar where we shared our expertise. We are happy and excited to be in India as it suits our approach of working through collaborative joint ventures and allows transfer of knowledge and expertise. We will ensure that we provide value to the country and not just to ourselves.

India welcomes outside expertise and we welcome bringing expertise into the country and sharing it. Both these strategies marry nicely. It is give and take, a win win situation through collaboration. It is a comfortable place for us to be in.

Today there are two LNG terminals in the country and many more are to come. Then there are also other quicker market solutions like floating storage and regasification units (FSRUs). This concept is cheaper, faster to implement, more flexible and does not involve any land acquisitions as required by shorebased terminals. This cost effective solution means that the resultant savings can be passed down the LNG value chain to end consumers.

India has a long coastline and both the East and West coast offers immense opportunities for installing FSRUs. What is most interesting is that different types of projects have different needs to which we can cater. For instance, we also have expertise in ship to ship transfer which may be required in some locations. Our competencies as well as prior experience in harsh weather FPSOs can be extended to some projects that are being considered at offshore locations in India. It is important to add that we have made a strong commitment in India to provide solutions to the LNG industry and we will endeavor to utilize Indian competence and resources.

Are you in talks with any company in India for setting up FSRUs?

We are talking to a number of players in India on exploring the possibility of setting up FSRUs. In fact, we are looking at a number of FSRU possibilities in India. During Vibrant Gujarat summit recently, we signed an MoU with Swan Energy to develop a 5-mmtpa FSRU in the state. We are also in talks with other LNG players such as GAIL, Petronet LNG Ltd and many more for setting up FSRUs.

With our corporate set up and LNG partners, we can raise equity as and when required. Realistically speaking, two to three of these contracts may materialize this year itself. So we are committed to India already and it seems natural to develop business here.

We have recently ordered two LNG carriers which will use advanced M-type electronically controlled gas injection twin engine which we hope to charter out very soon.

Will you also look to venture into setting up LNG infrastructure in India?

Being a marine company, we are interested in being a part of an integrated LNG facility specializing in the provision of the FSRU where our competency lies. We are not looking to get into LNG trading or laying pipelines outside the LNG facility.

Singapore is setting up a 6-mmtpa LNG terminal to trade LNG. Do you think this will alter transportation requirements of Indian companies sourcing LNG?

We expect the terminal to cater to requirement of spot LNG mostly. Players who need gas more than contracted may use this facility. To them, this gas may turn out to be readily available to meet the demand. But I do not think that this will have any major impact on long-term LNG contracts.

Are you exploring opportunities for setting FSRUs elsewhere in the Indian sub continent?

We have been approached by Sri Lanka for looking at FSRU opportunities. However, we are not looking at either Bangladesh or Pakistan as of now. India is a better opportunity for us and we prefer to focus our efforts here. In fact, we have an India strategy which we kicked off 18 months ago for gas opportunities.

What prompted formulation of a specific strategy for India?

India welcomes outside expertise and we welcome bringing expertise into the country and sharing it. Both these strategies marry nicely. It is give and take here, a win-win situation through collaboration. It is a comfortable place for us to be in. India has become more accessible as the government is attracting foreign investment which is making it easy for foreign investors.

How much of an investment is the company looking at in India?

Today Teekay Gas Partner has the ability to fund substantial annual growth. Bearing this in mind each project will be evaluated on its meritsand necessary capital will be made available as required.

Please throw light on the entire range of business operations being undertaken by Teekay Shipping Corporation.

The company was founded in 1973 but it took some time to grow. It was in 1980s that Teekay Shipping became a major player in the Aframax sector which involved shipping crude oil across the Pacific from Indonesia to west coast of United States and transporting fuel oil back to West Asia. This trade was created on the back of a number of time chartered Aframax tankers. In 1985 we decided to venture into direct purchase of second-hand ships as the quality of ships required was not readily available for time charter. In 1988, we ventured into a new building program in the Aframax sector.

In 1995 Teekay Shipping was floated on the New York Stock Exchange. This was a period of consolidation and recovery after the downturn in the Aframax sector in early 1990s. By 1998, the company was on a stable platform.

We realised early that we needed competent and efficient officers. Today India is our single largest supplier of officers accounting for 25% of our total officer strength.

In 1998 we embarked on a growth and diversification strategy under the leadership of our CEO, Bjorn Moller. As strategy of diversification, first we acquired three tankers of Caltex Australia and set up an operational hub in Australia. Simultaneously we diversified in to the offshore market placing FSO (floating storage and off take) on long term contract on west coast of Australia.

In the Aframax sector, we expanded our business in the Atlantic by acquiring Bona Shipping Norway which had a dominant position in that market.

As a natural extension of our competencies, we entered the shuttle tanker market through the acquisition of a controlling stake in the largest publicly traded shuttle tanker operator – Ugland Nordic Shipping of Norway. We then acquired Statoil’s wholly-owned shipping company, Navion ASA., Norway, which gave us access to majority of shuttle tankers operating in the North Sea. We further expanded in LNG sector by acquiring Naveria F.Tapais AS.

We extended our competency further into developing Floating Production Storage and Offloading (FPSO) units through our acquisition of Petrojarl in Norway. Today, we have 11 FPSOs, to go with a new building which has been engineered in New Delhi by an Indian contingent and another one in Brazil.

The diversification strategy has allowed us to thrive in a market that others are struggling to survive in. We are in a very strong position to continue growing as others are taking cover. The strategy has paid off in the long term.

When did you set up base in India?

We have had a presence in India since 1988. We realized very early as we grew our fleet that we needed well educated, competent and efficient officers. No longer were they available in Europe to a great extent. Initially we worked through a manning agency and on acquisition of Bona Shipping we established our own office which takes care of our manning and business development. Today, India is our single largest supplier of officers accounting for 25 per cent of our total officer strength.

How did Teekay evolve into an LNG transporting company?

Having become a prominent player in the Aframax and Suezmax sector in the Pacific and the Atlantic as well as in the shuttle tanker market, our aim was to become the world’s leading supplier of energy transportation. This led us to LNG. In 2003 we decided to enter the LNG space with a two pronged approach. We acquired four LNG ships from Spain’s largest provider of marine energy transportation, Naviera F. Tapias S.A. At the same time we were successful in tendering for three ships for a RasGas project in Qatar. Having invested a total of 4 billion dollars today we have 29 LNG ships, including 50
per cent ownership in a FSRU and two ship new building order, making us the 3rd largest independent operator in LNG ships in the world.

How did you arrange funds for implementing the growth and diversification strategy?

In order to fund our growth ambitions our parent Teekay Corporation created three daughter companies namely Teekay LNG Partners L. P, Teekay Offshore Partners L.P, Teekay Tankers Ltd, all of which are listed on the New York Stock Exchange. The creation of this facility has allowed us to grow competitively as equity can be raised to support our ventures.