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SEP 12 2017

Domestic LNG business set to take off after being given up for dead; here is what is fueling hope

  • Economic Times, ET Bureau / Hyderabad
  • Created: Tue 12th SEP 2017

 

The domestic LNG business, which has not been able to take off due to unaffordable price of imported gas, seems set for a revival as suppliers have begun to agree to renegotiate long-term contract prices, and smaller production units — apart from large consumers such as fertilisers, power and city gas distribution (CGD) — are now likely to switch to clean fuel.

Experts believe that suppliers are now ready to accept the changed market conditions. “Earlier, long-term contracts were stiff but now the market is becoming deeper for the price-sensitive natural gas,” said B Ashok, former chairman of Indian Oil Corporation. He added that natural gas has utility in various industries and consumers will now have the confidence to invest in infrastructure to use gas as fuel. “With prices expected to remain range-bound, I think they (consumers) will invest to move to gas,” he added.

After successfully renegotiating LNG prices with Qatar’s RasGas almost two years ago for a 25-year contract, India’s Petronet LNG has now cut a similar deal with ExxonMobil which supplies LNG from Australia under a 20-year contract. While the deal with RasGas was signed in 1999 for 7.5 million tonne per annum (mtpa) and supply started in 2004, the deal with ExxonMobil was signed in 2009 for 1.4 mtpa and supply started in 2016.

Petroleum minister Dharmendra Pradhan on Sunday tweeted: “India has, yet again, been able to address the long-term price issue of LNG from Gorgon to suit Indian market.” Without elaborating on the specifics of the deal, he also tweeted: “Indian consumers will receive LNG volumes at amicable price soon; this is done in a similar way to what we had done with LNG from Qatar.”

Petronet LNG had renegotiated prices to half with RasGas and agreed to buy an additional 1 mtpa of LNG apart from the initially agreed 7.5 mtpa. A report from Kotak Institutional Securities released on Monday noted, “Our calculations suggest that such a change in formula will result in more than $1 a million BTU reduction in landed price of Gorgon LNG (ExxonMobil) for off-takers at prevailing crude prices.”

Experts believe that such renegotiations are now happening because of the change in market dynamics. “It is an oversupplied LNG market and countries such as India and China where there is robust demand for energy are able to drive a good bargain with suppliers.

All three top LNG exporting countries — Qatar, Australia and the US — are vying for limited long-term contract opportunities as consumers are preferring to take advantage of the softer spot prices,” said Debasish Mishra, partner, Deloitte Touche Tohmatsu India. He, too, expects gas prices to remain range-bound.

While gas obtained from difficult fields is available at $5.56 per mmbtu in India, spot regasified LNG (RLNG) spot price is around $7-8 per mmbtu compared with domestic gas price of $2.48 mmbtu at present. While imported gas can be priced and marketed without government intervention, domestic gas prices are regulated.

As per a report by Care Ratings, fertilisers, power, and city gas distribution are leaders in consuming natural gas. “Out of the total consumption in FY15-16 (provisional), 56% has been consumed as a fuel, whereas rest 44% is used as a feedstock,” said the report.

However, a decline in gas production from 46.04 BCM in FY11 to 24.99 BCM in FY17 shows that most of India’s need depends on imports which are costly for many industries including power. The new developments will help India in achieving its target to increase the use of gas in the energy mix to 15% from the current 6.5%.

Experts believe that the price at which consumers will get natural gas will depend not only on the DES price of LNG, but also on the competitive intensity across regasification and pipeline assets in a given market. “We have to see the landed cost in conjunction with the margin build-up across regas facilities, network assets, marketing entities as well as the prevalent taxes,” said Kaustav Mukherjee, senior partner, Boston Consulting Group.

Tags

TOTAL Gas Natural Gas Oil China Energy Re-gasified liquified natural gas United States Petroleum CGD Liquefied natural gas Power Deloitte India Australia

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