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  1. India moving to gas based economy? Trend decoded

India moving to gas based economy? Trend decoded

In May, India saw its LNG imports growing by about 43.38%. Although volumes are increasing, India still has a long-way to go for last mile connectivity of gas grid.

By: | Updated: July 5, 2016 12:19 PM
Prabhat Singh, managing director and CEO, Petronet LNG talks about India's gas market in an interview with FE’s Siddhartha P Saikia. Prabhat Singh, managing director and CEO, Petronet LNG talks about India’s gas market in an interview with FE’s Siddhartha P Saikia.

In May, India saw its LNG imports growing by about 43.38%. Although volumes are increasing, India still has a long-way to go for last mile connectivity of gas grid.  Prabhat Singh, managing director and CEO, Petronet LNG talks about India’s gas market in an interview with FE’s Siddhartha P Saikia. Excerpts:

Do you think India is gradually moving towards a gas-based economy?
There are two sides to this story – one is the demand side, which is obviously linked to the price and the second is the infrastructure availability. Again to become a gas based economy – there are two factors — how much gas is domestically produced and how much is imported. Now, infrastructure and pricing is relevant for both of them. Factual, position today is that there are lot of efforts by government to move towards the gas based economy by trying to improvise and incentivise the production sharing contract of the explorers. This would improve the domestic availability.

So, what role would LNG play in the gas basket?   
Looking at the imported side, today, we are importing about 40-45% of our requirement, which is going to increase further. Now, to import every unit of gas, the country requires infrastructure. We are importing about 14.5 million tonnes of LNG (annually), and there are about 23-25 million tonnes of re-gassification terminals. But, the Kochi terminal is not connected to grid and Dabhol does not have breakwater facility.

What is the way out for the Kochi terminal?  
The Prime Minister has taken up the Kochi pipeline on top priority. The State (Kerala) has agreed to offer support. On June 24, GAIL has accepted bids to lay a part of the pipeline, and this time competition is reasonably high. The Kerala government and Kochi Port Trust are losing on revenue in absence of evacuation facility. The pipeline would be a relief for them. If the pipeline for the section comes, connecting Mangalore and touching Coimbatore, the capacity utilisation of Kochi terminal would go up to 40-45% from 5% now.

But, why consumers are not buying LNG even when it is cheaper?      
The Dahej terminal is operating at top capacity of 120%. Now, customers are asking for more but Petronet do not have capacity at Dahej. Now, Dabhol is closed because of monsoon. At the Hazira terminal – RIL and GSPC are taking lot of gas. Domestically, there are around 80-85 mmscmd of gas. We are importing around 40-45 mmscmd. There are no terminal in East Coast.

Infrastructure or demand- which do you think is required first?     
If you have pipeline capacity of more than 300 mmscmd and actual consumption is 120-130 mmscmd, so you end up running at lower capacity. Globally, infrastructure is always over hang than consumption. Globally, re-gassification facilities are operating at 36-37% capacity. But, all projects are running and economically viable. The point to look at is the value of overhang capacity at $/mBtu is less than 2 cents. Therefore, if you are able to garner a good cargo, you can run your terminal. The incentive is to corner a cargo at lower price. Government should make more efforts to set up infrastructure. If you really aim to be a gas economy, infrastructure is a must. We had laid the HVJ (Hazira-Vijaipur-Jagdishpur) pipeline in 1987 spending R1,800 crore. Today, in 2016 the pipeline is support industry worth more than R1 lakh crore.

But investors are not willing to spend for infrastructure?       
The investors are ready for investment. What they want is to be guarded at least for the first five years towards capacity utilisation. For instance, Singapore LNG terminal is 6 mtpa, and further expanding it to 11 mtpa. But, the capacity utilisation is around 3 mtpa. The bill for gap of capacity utilisation is foot by the state government. For attracting cargoes which are dollar sensitive, you have to give few cents to the re-gassification or the infrastructure person. Once the pipeline is in place more more people would start gas utilisation.

Are you re-doing the contract with Australia’s Gorgon project?     
The gas scenario market has actually undergone a paradigm shift. Market absorption of volume is a necessity and that is how things would be worked around. We are actually trying to understand the off takers and what is their position. Exxon also realises what is the market. India needs gas and volumes are not are a problem.

What is your outlook on gas price?      
At least for the next four-five years, gas price would be quite in control. The way gas is coming out of shale, it has put a different flavour to the market. It has actually given a tool in the hand of producer to access the market. Volumes are continuously coming into the market. According to reports, there are 400-500 which can be produced at less than $4/mBtu, while there are about 50 tcf of gas which could be produced for free.

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