Operators have tied up only 31.3 mscmd of the 118 mscmd intended by 2016.
By 2016, India is expected to have a total of five liquefied natural gas (LNG) terminals — with a total capacity of over 118 million standard cubic meters of gas per day (mscmd) — against just two (both in Gujarat) that are currently operational in the country.
Despite the intended capacities, the operators of the proposed terminals and the present ones have been able to tie up only 31.3 mscmd gas on long-term basis.
| FUELLING GRWOTH Projected LNG capacity in India | ||
| Terminals (Mtpa) | 2011-12 | 2016-17 |
| PLL (Dahej) | 10.0 | 10.0 |
| PLL (Kochi) | 0.0 | 5.0 |
| Shell, Hazira | 3.7 | 3.7 |
| Dabhol | 0.0 | 5.0 |
| Mundra | 0.0 | 5.0 |
| Ennore | 0.0 | 5.0 |
| Total | 13.7 | 33.7 |
| Source: ICRA Rating Service | ||
This June, Petronet LNG signed a 25-year deal with Russia’s Gazprom to buy 2.5 million tonnes per annum (mtpa) of LNG. Gazprom has also signed a deal with IndianOil Corporation to supply 2.5 mtpa of LNG for 25 years. These deals come with surety only regarding supply, and not price.
Currently, Petronet LNG’s Dahej and Shell’s Hazira terminal together have a total capacity of 13.7 million metric tonnes per annum (mtpa) or 48 mscmd.
As for the new terminals, there will be a key challenge: their ability to tie up LNG supplies through long-term contracts at competitive prices. Utilities in India import LNG under long-term contracts that are linked to the price of crude oil. Long-term agreements can be anywhere between 15-25 years.
The Dahej terminal has 7.50 mtpa gas tied up on long-term contract from Qatar and Australia against its nameplate capacity of 10 mtpa. The balance capacity is met after regasifying the LNG sourced through spot, short or mid-term contracts.
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For Kerala’s Kochi terminal, PLL has tied up to the extent of around 1.45 mtpa from Australia’s Gorgon project from 2014 on long-term contract, against the terminal’s capacity of 5 mtpa.
“The sellers are happy to sell long-term agreements at a price they want to sell,” notes K Ravichandran of ICRA. “But Indian companies find those price levels too steep. Besides, considering that long-term supply agreements for the Asia-pacific regions are linked to crude oil, an increase in price of crude oil would push up LNG prices.
Ravichandran, who is senior vice-president and co-head (corporate sector ratings) of the agency, says the LNG slope (technical term for linkage of LNG to crude oil) has, over the past year, increased steadily from 12.5-13 to 15-16 per cent. That is, if crude price is $100 per barrel and LNG slope or linkage is 16 per cent, LNG price is at $16 per million British thermal unit (mBtu).
The slope has, in the past one year, shifted by about one per cent or one dollar per mBtu. “On the volumes, this will have a big impact,” maintains Ravichandran. Added to this are costs that include freight charge, customs duty, port expenditure and pipeline tariff. Indian LNG companies find the total costs too high for signing long-term agreements. The next terminal to be commissioned could be Dabhol, which has government-owned NTPC and GAIL as partners. Despite its expertise in the gas business, GAIL has not been successful in looking for long-term suppliers. Mundra and Ennore would be commissioned next, but they too will not be in a position to start full-scale operations if long-term LNG is not available to them even for base load.
As for Shell, it has been using its Hazira terminal exclusively for regassifying spot LNG as part of its global business strategy. While Mundra would be commissioned in 2015-16, IndianOil’s Ennore terminal in Tamil Nadu is slated to be commissioned in 2016-17. By 2017, the projected cumulative capacity of these terminals is over 118 mscmd.
At present, the tied-up capacity is only 31.3 mscmd against the required capacity of 48 mscmd.
Says Hong Chou Hui, managing editor of Asia LNG: “Oil-linked prices are the norm for long-term LNG contracts. The real challenge for the long-term Indian buyers would be how to sell to a downstream sector where gas prices are regulated. How much gas can these long-term LNG buyers can use and absorb?”
He notes that Asia’s spot LNG prices are “heavily dictated” by Japan and to a “lesser extent” by South Korea. “Seasonality and nuclear issues in the two north Asian giants could pull prices up further. This could impact on Indian LNG values. India buys an estimated four to five spot cargo per month.”
Analysts say LNG in the spot market is “pretty tight”. Cautions one of them: “If the players don’t have long-term agreements, they could be exposing themselves to volatile short-term spikes.” However, with supply coming online next year, and a whole load more expected from Australia and the US, these players are likely to sign some long-term contracts. Besides, Russia is increasingly looking at supplying to the Indian market.