LNG firms see no cause for comfort

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The delay in gas price hike will not bring comfort to LNG distribution companies afflicted by poor demand and high prices that have already led to half their capacities lying idle. Industry insiders believe that unless the LNG companies reduce prices to acceptable limits through cheap sourcing, LNG terminals will remain unviable even if domestic gas output rises by 2016-17.

Almost 50 per cent of the existing capacity of 25 million tonnes per annum (mtpa) has been idling due to poor demand from power and fertiliser companies, as they find the price of imported LNG at close to $14-$17 per million metric British thermal unit (mmBtu) expensive.

Five more LNG terminals with total capacity of 25 mtpa are under various stages of construction. An industry insider, who did not want to be named, said only if distributors can source LNG from Canada and the US at prevailing $4.5 per mmBtu, the landed price would work out to $11-$11.5 per mmBtu, including freight charges.

Unless that happens, domestic oil and gas producers will take over the market from distributors of imported gas by 2016-17.

“If they manage to reduce the price then, there would be stiff competition with the domestic producers, since there would still be a demand shortfall of around 100-150 mtpa, which would have to be met with imported gas. However, demand will be directly proportional to the price of gas,” the official said.

Petronet LNG, GAIL, Adani, GSPC, Indian Oil and APM Terminals are setting up LNG terminals that are under various stages of completion. Existing capacities include a 10 mtpa facility in Dahej, 5 mtpa in Hazira, 5 mtpa in Ratnagiri (Dabhol) and 5 mtpa at Kochi. Almost 50 per cent of this capacity remains unutilised.

AK Balyan, managing director and CEO of Petronet LNG, could not be reached for comments.

A senior official from GAIL that owns the Dabhol terminal and holds stake in Petronet LNG, said that the government couldn’t forever subsidise the gas requirements of local fertiliser and power companies. Output from Indian fields will increase only after 2-3 years, as RIL, GSPC, ONGC, BPCL and OIL start commercial production.

Meanwhile, a hike in the price of domestic gas would only narrow the gap in prices of imported and domestic gas. “But demand will improve only if there is a substantial drop in price from the current level,” he said.

GAIL is trying to improve the price realisation from imported gas for which not only India, but the rest of Asia is also paying a huge premium. In order to synergise use of gas in the region, the company is promoting cross-border pipelines to bring gas from central Asia and to promote Asian Cooperation Forum to address the Asian gas grid and an Asia hub or index.

GAIL chairman BC Tripathi said at the Gastech conference in Seoul on Monday that in times to come, the Asian market would prefer suppliers who have reliable and diverse sources of supply and can offer transparent and competitive pricing methodologies. He reiterated that “contracts with destination flexibilities and innovative pricing have become essential, as it would help tap the new demand by offering a win-win proposition for both suppliers and buyers.”


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