India was reported to be actively engaged in renegotiating gas contracts to get the best out of current low prices.
Moving from HSD to LNG?
India
India was reported to be actively engaged in renegotiating gas contracts to get the best out of current low prices. GAIL (India) Ltd. was reported to be seeking to defer the 20 year contract to buy LNG from Gazprom until the Shtokman project begins production. GAIL signed a contract in 2012 to buy 2.5 million tonnes (MT) of LNG from Gazprom starting from 2018. Apparently, GAIL is finding it difficult to lure buyers for gas despite the fall in gas prices. If no one wants to buy even cheap gas in India it is not clear what the basis is for all the talk of India being well on its way to becoming a gas based economy? But there was news to support this claim. According to the overseas press, LNG imports to India on short term contracts increased by 43% compared to last year. This was in sharp contrast to Western Europe where demand for gas has fallen. Many analysts expect India’s LNG purchases to increase as price of LNG at the National Balancing Point (NBP) has fallen to about $4.8/mmBtu which is less than the $5/mmBtu India pays to Qatar for LNG. Petronet’s Dahaj LNG terminal is reportedly running at over 100% its capacity. However overall import of gas for FY16 remained at 14.5 MT which was the same as that last year.
The Natural Gas Vehicles Summit held in Delhi recently concluded that India could potentially use about five MTPA of LNG as substitute for diesel in rail and road transportation. India currently uses 70 MTPA of HSD and a 20% shift to LNG would result in a demand of five MTPA of LNG. LNG is said to have several advantages over CNG, but CNG receives priority allocation from domestic gas which makes it the preferred choice. LNG would cover more distance per refuelling and consequently require less refuelling stops. It is also reportedly safer as it is stored at low pressure (6-8 bar) compared to CNG (> 800 bar). LNG can also be pumped at a high flow rate which would save filling time. India’s biggest commercial vehicle manufacturer, Tata Motors, has made a start by developing India’s first heavy duty LNG fuelled truck, Prima 4032.S.
One of the positive items reported by the media in July was that a joint expedition by India and the US Geological Survey (USGS) had discovered a major deposit of natural gas in the form of gas hydrates in the Bay of Bengal. No figures were quoted on the extent of reserves of gas hydrates. Whether this qualifies as a new ‘discovery’ through joint exploration between India and USA is debatable as the presence of gas hydrates in the oceans around India was established by ONGC as early as 1984. The key questions that remains unanswered are the extent of the reserves and when and how they could be recovered economically.
Indian Oil Corporation (IOC) was reported to be in talks to buy the Gujarat State Petroleum Corporation’s (GSPC) stake in the Mundra LNG terminal. Others in the run include ONGC and India Gas Solutions a joint venture between BP and Reliance Industries. Other than the stake sale, there are two issues that should interest readers. One is how GSPC’s debt problems were not converted into a mega scam by the media even though it had the potential to become one ($2 billion from PSU banks having vanished without a trace of gas) and how GSPCs problems are being quietly passed on to profitable PSUs. The other question is on why downstream oil companies are extending their reach into the gas business. Is it because only oil refiners who thrive on margins have the financial resources to bail out bankrupt gas companies?
Coal bed methane (CBM) was in the news in June. The Centre was reported to have assured the Government of Tamil Nadu that it will not force it to implement a CBM project by Great Eastern Energy Corporation in Cauvery river delta districts of Thanjavur and Tiruvarur. Farmers were reported to be worried over the impact of the project on agriculture. The other news on CBM was that Reliance Industries was close to producing CBM from Sohagpur block in Madhya Pradesh. Initial production is estimated at 1 mmscmd while peak production is expected to touch 3.5 mmscmd.
Petronet LNG is reportedly planning to invest around $450-600 million in projects outside India in the next five years. It is planning to construct a five MTPA import terminal in Bangladesh and a 1 MTPA terminal in Sri Lanka. GAIL has reportedly issued a tender for six LNG cargoes to take advantage of low prices. While LNG sellers could rejoice over opportunities finally materialising in the Indian market, domestic producers were facing the depressing prospect of a 20% fall in natural gas prices by October. This is the fourth drop in prices in the last 18 months. The gas industry clamoured for a formula linked to international gas prices assuming that it would be a one way bet. They got a formula that they wished for but unfortunately it did not prove to be a one way bet. As they say, ‘be careful what you wish for because you might just get it’!
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