Shell eyes a bigger pie of LNG market

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Published: November 26, 2014 12:05:44 AM

Plans to expand Hazira terminal; set up another in Andhra Pradesh

Royal Dutch Shell, the first company to set up a LNG terminal at Hazira in Gujarat nearly nine years back, is targeting to grab a bigger share of the growing demand for imported gas in India. The Hague-based global energy giant is planning to nearly double the capacity at Hazira and is also setting up another facility in the east coast of India.

“Hazira has the potential to be developed to 10 mtpa (million tonnes per annum). Currently, we are at 5 mtpa. We can incrementally expand Hazira by having more tanks and more vaporization. We are in process of doing detailed engineering work for an expansion which is going to take some more months to complete”, said James MacTaggart, general manager (new markets Asia & MENA) at Shell.

Hazira LNG Pvt (HLPL) is a joint venture between Shell (74%) and Total (26%).

Shell

India was self-sufficient in natural gas until 2004, when it began to import LNG from Qatar. Because it has not been able to create sufficient natural gas infrastructure on a national level or produce adequate domestic natural gas to meet domestic demand, India increasingly relies on imported LNG, says the US Energy Information Administration (EIA).

India was the world’s fourth-largest LNG importer in 2013, following Japan, South Korea and China, and consumed almost 6% of the global market, according to data from IHS Energy. Indian companies hold both long-term supply contracts and more expensive spot LNG contracts.

“We look at about 2% gas demand growth globally between now (2014) and 2030 year-on-year. Of this demand, LNG is expected to grow at about 5%. We expect it go from 240 mtpa to about 430 mtpa”, MacTaggart told FE in a recent interview.
Shell, which is also the largest equity producer of LNG internationally, sold 35 million tonnes of the commodity in 2014 globally. Its Hazira terminal in Gujarat was operating at an average of 56.4% of total capacity in FY14, according to data available with the petroleum ministry.

At present, Japan, Korea and Taiwan buy about 70% of the LNG. These have been historically major buyers, supporting long term projects. But, Shell doesn’t expect much demand growth in those markets. Without these countries, many LNG projects in which Shell has been involved would never have happened—Australian, Brunei, or Russian project. These happened because Japan, Korea and Taiwan got together and bought 80-90% from these terminals.

“The big change is in China, South East Asia, India and Europe. We see a large amount of growth in Europe. The domestic production in Europe is declining,” says MacTaggart.

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Currently, India gas consumption hovers around 100-110 million metric standard cubic metre per day (mmscmd). Of this, about 30-35% is sourced through R-LNG.

“The demand could be twice-thrice this number. It is the consumption”, says Anindya Chowdhury, general manager (gas) at Shell India Markets Private Limited. “ We are convinced that LNG will provide a balance of supply to customers. Based on our experience in the market over nine years we have a strong conviction about customers embracing LNG. In a short span of 10 years, LNG forms a third of gas supplies in India and there is a likelihood that this share will grow over time”, he said.
Shell is now confident of setting up another LNG terminal at Kakinada in Andhra Pradesh. Earlier, it was working on developing a terminal for many years with Reliance ADAG, but it did not materialise.

“We were very close to an investment decision but that didn’t happen. Then because of very strong support of the chief minister of Andhra Pradesh we were brought into the state government-led project. That was the start of the consolidated project. Now we will work with partners to do a number of things. We have already done detailed engineering work on designing the structure. There is still a lot of work–establishing the company, marketing, decide on business structure. All that will take time”, said MacTaggart who is based in Singapore.

In the new LNG terminal, Andhra Pradesh Gas Distribution Corporation (APGDC) holds 48%, while Gas de France (GDF) and Shell holds 26% each.

Shell says though the demand for LNG is vast, not everyone is getting to use it. It feels that investment in energy infrastructure should not be based wholly on commercial considerations or short-term price changes. What’s most important to industry is a stable supply of gas and electricity, which is more important than the ups and downs of short-term prices. “Shell does scenarios of what’s going to happen in 2050 or in 2100. We look at the world not on what is going to happen in six months. Ups and downs of pricing is important, but not the major driver of demand”, said MacTaggart.

According to Chowdhury, if India has to grow at 8-9%, then energy growth has to come at 6%. “We can look around to see which energy source can provide such accelerated growth. LNG terminals can be set up reasonably quickly, if pipeline infrastructure can keep pace. LNG is well-suited to meet the growing energy demand.”
One disappointment for Shell, about which it was quite vocal, is how certain governments have moved away from LNG to coal.

“Shell is of the view that LNG demand will grow and it’s better to go with renewable backed by gas. When you don’t have wind and solar power it’s much better to have gas. Coal and renewable are much more expensive and much worse”,  said MacTaggart.

The issue is important, Shell thinks, because the choices we make or the choices that our governments make are going to have regulations that encourage import of gas, which encourage aspiration for gas as opposed to coal. “It affects the quality of life. And we must not forget that. The important choices are, should we have more of gas or should we have more of coal,” said MacTaggart.

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