As domestic gas output continues to dip, the country’s biggest gas importer Petronet LNG is all set to commission its second and the country’s third LNG import terminal at Kochi. It has also been approached by Kerala state government to set up a gas-based power plant at Kochi under a joint venture. A K Balyan, MD & CEO of the company talks to Ajay Modi on the company’s near-term plans and gas market outlook. Edited excerpt follows:
Q. When will Petronet commence operations at Kochi terminal? Has gas import been tied up?
A. We are moving closer to fixing a date. We have a meeting later this month to decide on a possible date. Given the progress, we hope to commission it during January-February next year. We will be getting 1.5 million tonne Gorgon gas from Australia for 20 years beginning January 2015 at Kochi. In the meanwhile, we will operate on short-term and spot basis. More gas tie-ups are being explored.
Q. What capacity will initially be operational at Kochi?
A. I think it will be in the range of 0.75 to 1 million tonne till the end of next calendar year. By 2013 end, the GAIL pipeline connecting Kochi with Mangalore via Tamil Nadu is expected to be operational. This will enhance our capacity utilization substantially as Mangalore alone has a demand of 2.5 million tonne. We foresee sending out close to 4.5 million tonne LNG once the pipeline is commissioned. This pipeline was to come along with this terminal but it has got delayed.
Q. Who will be the main consumers for Kochi terminal?
A. A number of consumers have been finalized. These include the FACT fertilizer plant at Travancore, BPCL’s Kochi refinery, a glass unit and power unit.
Q. What happened to your talks with NTPC for gas supply?
A. There is nothing substantial on this at the moment. They are running the plant on naphtha. Changing over to gas would have made a better economic sense. I am not sure why they have not evinced a serious interest.
Q. What is the status of the company’s power plant proposal at Kochi?
A. We have been approached by the Kerala government on the power plant suggesting 50:50 joint venture for a 1,200 MW project. We have responded positively but further progress will depend on two issues. Firstly, the state government should give us land contiguous to our terminal for better integration and secondly, it guarantees a minimum 70% power off-take. They are aware that the power generated on imported gas will be costlier but they are agreeable. We have proposed a MoU on the entire power business model. State government has done lot of analysis on the project. They have a few power projects on naphtha that is costlier. The state ends up buying the deficit from outside at a tariff of about Rs 10 a unit. The project can have an upside if international prices soften or if we are able to get some domestic allocation. Gas produced through imported LNG may cost about Rs 6.50 per unit. If the power produced costs less than Rs 7, the state government will be very happy to buy.
Q. Why there is no similar interest in your power plans for Dahej from the Gujarat government?
A. We have completed DFR for Dahej power project. We have told that the state government will have to commit a purchase. Unless they commit 70% purchase, we will not be able to work on the project. Gujarat today is power surplus against a deficit in Kerala. So, the Gujarat project will have to wait.
Q. What progress has been made in the new terminal plan at Gangavaram?
A. We have applied for environmental clearance and other statutory approvals are in progress for the project. A term sheet has been signed and the project is on track. HPCL has shown interest in picking up equity. We have not yet finalized it. However, we have signed an agreement to supply gas to HPCL’s Vizag refinery.
Q. How is the international gas market behaving? Are you looking for more import contracts?
A. Availability is improving as more projects are coming up. Therefore, prices are also softening. There is no import by US while the growth in Europe is also low. New projects will look to sell more in Asia and prices should become more realistic. Negotiations are on for short-term and long-term import contracts.
Q. There is a demand from domestic producers like RIL to revise gas price from $4.2 to a price of around $13. If this happens, what impact will it have on Petronet?
A. A uniform price for gas irrespective of the source is welcome. When prices will be same for both imported LNG and domestic gas I see preference growing for LNG that can offer an assured supply compared to uncertainties in domestic supply.