LNG import terminals to face major challenges: Icra

New LNG import terminals will face major challenges due to price sensitive demand, Icra said in its latest update on gas utilities sector.
According to Icra estimate, gas demand will increase to 330 million standard cubic meters per day by 2024-25, while domestic natural gas production will rise by 60 per cent to around 150 mmscmd.
The domestic output increase is contingent upon GSPC's Deen Dayal block and ONGC's KG basin blocks going on stream along with marginal increase in Reliance Industries' KG production, the rating agency said.
"Despite high domestic demand-supply deficit, the demand for Regasified-Liquefied Natural Gas (R-LNG) in the country is critically dependent upon the prices of liquid fuels and global spot LNG prices," Icra said.

Prices of long-term LNG from RasGas of Qatar are expected to be at materially higher level than liquid fuel prices and spot LNG prices till 2016-17, leading to significant pressure on demand and marketing margins in view of lower prices of liquid fuels and spot LNG.
"The marketers are expected to partially mitigate the risk by taking recourse to offtake flexibility available and by marketing a higher share of spot LNG," Icra said.

Icra projected LNG import and re-gasification capacity to significantly increase from current operational capacity of 17 million tons per annum to around 44 million tons (about 155 mmscmd) by 2019-20 and around 55 million tons (190 mmscmd) by 2024-25.

As per ICRA study, the key challenge for the new terminals is their ability to tie up LNG supplies through long-term contracts at competitive prices and the competition faced by RLNG from liquid fuels.
"However, the risk related to tie up of LNG is partly mitigated by the fact that the global LNG supply demand balance is expected to ease from FY 16 onwards," it said.
Due to significant competition from liquid fuels and coal, the actual consumption of RLNG could be lower than demand potential leading to significant competitive pressures among LNG terminals, said K Ravichandran, Senior Vice-President and Co-Head, Corporate Ratings, ICRA.

"Icra believes that if many re-gasification terminals, as planned come on stream over the next 4-5 years, the new entrants would face significant pressure on volumes and margins as they will have to compete with the existing terminals / brown-field expansion which are more cost efficient due to lower capital intensity," he said.