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Huge Potential of LNG Terminals in India
Domestic natural gas production in India is about 120 mmscmd, as against a demand of around 189 mmscmd. Currently, the country is importing 46.5 units of LNG. By the end of 12th Five Year Plan (2012-13 to 2016-17), the demand of natural gas is expected to grow over twofold. As per the Oil Ministry s projections, from the current demand of natural gas of 189 units, the demand will increase to 473 units (in 2016-17). If we go by the projections, the overall demand would grow from 293 mmscmd (in 2012-13) to 473 mmscmd (in 2016-17) over the 12th plan period and from 494 mmscmd (in 2017-18) to 606 mmscmd (in 2021-22) over the 13th plan period.

European nations have still not recovered from the economic crisis, and as such the large global gas suppliers are eyeing India as a leading hot destination for gas supplies as against their earlier focus on the Western markets. The International Energy Agency (IEA), too, considers India as an emerging economy, and officials of this advisory suggest global suppliers to focus on India as one of the Asia s largest economies. Royal Dutch Shell, the leading player in the world s gas market, amongst the other big traders of Liquefied Natural Gas (LNG) from the Middle East and other regions, too, has pointed out that India offers a huge opportunity for big LNG portfolio players. The huge potential of gas supplies to Indian markets has also not been left unnoticed by Russia s leading gas supplier Gazprom and UK s British Gas (BG).

Gazprom and BG, recently have signed deals with the state-owned gas company GAIL (India) Ltd, Gujarat State Petroleum Corporation (GSPC), Petronet LNG, Indian Oil Corporation Limited (IOCL) and other Indian companies for supplying a total of over 15 million tonnes of LNG per year from their portfolio. In particular, BG Group has signed an initial agreement with GSPC wherein it will supply 2.5 million tonnes of Liquefied Natural Gas to GSPC for 20 years. The binding agreement between the two countries will be signed early next year and the supply will start by 2014. At present, Oil and Natural Gas Corporation (ONGC) is producing 51 mmscmd of natural gas, with Reliance Industries and Oil India producing 6.6 mmscmd of natural gas respectively.

There has been a decline in the production of natural gas from Krishna Godavari (KG) basin by Reliance Industries from 55.9 mscmd in 2010-11 to 46.6 mscmd in 2011-12, and this has only led to an increase in demand of spot LNG production.

Current LNG Terminals and their Expansions
Petronet LNG Ltd (PLL) has a share of 20 per cent in the gas market currently. The company has an import and re-gasification terminal at Dahej, which has a capacity of 10 million metric tonnes a year. The company is in the process of increasing the capacity of its Dahej terminal by additional 5 MMTPA. The additional jetty under construction is to be commissioned by September 2013. The company claims to raise its LNG regasification capacity by one-and-a-half times to 25 million tonnes by 2015.

The company in the process of setting up a greenfield LNG terminal of 5-million-metric-tonne terminal in Kochi, which is expected to be commissioned by the end of 2012. With the commissioning of the terminal, the gas market in the south is expected to develop and more and more demand is likely to be seen.

PLL and Gazprom Marketing and Trading Singapore (GM&TS), the Singapore affiliate of Gazprom Global LNG (GGLNG) and 100 per cent subsidiary of Gazprom Marketing & Trading, have entered into a Memorandum of Understanding (MoU) for the supply of LNG on a long-term basis. As per the agreement, PLL will receive 2.5 million tonnes per annum of LNG from GM&TS's international supply portfolio for a period of 25 years.

The company has contracted to receive 1.44 MMTPA LNG from Exxon Mobil s 25 per cent stake in Australia s Gorgon project at prices higher than the existing LNG contracts. The supply is expected to start in 2014-15. The terminal will be the biggest in the country and the first one in South India, and will have the capacity of 38 MMSCMD a day when completed.

PLL has sourced about 7.5 million tonne LNG through long-term Contract with RasGas, Qatar and a mid-term contract which will contribute 1.5 million tonne, totaling around 9 million tonne, with back to back sales arrangement with GAIL, IOCL & Bharat Petroleum Corporation Limited (BPCL). The company is sourcing additional LNG through spot or short-term contracts and is selling it to offtakers or bulk buyers.

PLL, in partnership with GAIL, is looking at the possibility of setting up the country s first LNG terminal on the east coast, which is expected to have a capacity of five million tonnes a year. Depending on the feasibility study the possible location of the terminal would be anywhere between Kakinada in Andhra Pradesh and Haldia in Bengal. The terminal may be a floating one or may be on land. The floating unit, which is present in Kuwait, Dubai and Brasil, is faster to deploy and may cost 2,400 crore, about 25 per cent less than a terminal anchored to land.

GAIL has signed a joint venture agreement with Hindustan Petroleum and Greater Calcutta Gas Supply Corporation for setting up a Liquefied Natural Gas (LNG) Floating Storage and Regasification Unit (FSRU) at Dharma in Orissa, and this could entail an investment of about 3,000 crore. Gail will also set up India s first 4 million tonne capacity floating LNG terminal off the Andhra coast with an investment of about 2,000 crore. The project will be implemented by Andhra Pradesh Gas Distribution Corporation, a company jointly promoted by Gail Gas and Andhra Pradesh Gas Infrastructure, which has signed an agreement with GDF Suez LNG UK for jointly setting up a FSRU.

Ratnagiri Gas and Power Private Limited (RGPPL), India s third LNG import and regasification terminal at Dabhol in Maharashtra, is working towards raising its capacity to 5 mtpa. The terminal is expected to operate at full capacity during 2013-14. USD 641 was invested in the construction of the terminal. GAIL is also working on doubling the capacity of Dabhol power project s gas import facility to 10 million tonnes a year.

Shipping Corporation of India (SCI), which took over the management of Dabhol LNG terminal recently, sees great growth potential in LNG sector and has been awarded a three year contract for providing port and marine services to the dedicated Dabhol re-gasification terminal, owned by RGPPL.

Currently, Royal Dutch Shell PLC and France's Total SA, the two multinational oil and gas companies and the operators of the Hazira terminal in Gujarat, are in the process of increasing the capacity of LNG terminal at Hazira to the tune of 5 million tonnes (mt) by 2013 from the current capacity of 3.6 mt. They have estimated an investment of around ` 450 crore for their Hazira expansion project. Due to shortfall in gas production from its KG-D6 field, Reliance Industries Ltd (RIL) is set to enter into the marketing of imported natural gas. India Gas Solutions, the equal joint venture between RIL and British Petroleum (BP) set up to source and market natural gas in India, will shortly bring in LNG through the terminals of Shell India and Petronet LNG. RIL is in talks with various LNG terminal operators to book exclusive capacity at the existing LNG terminals.

Demand Supply Scenario
There is a demand- supply gap of gas in the country. With the current 120 units of domestic gas production, and the demand of 189 units of gas in the country, no doubt, the country depends significantly on the imports. The imports are to the tune of 46.5 units, leaving the country experience a deficit of around 22.7 units of natural gas. As per projections, the gap is likely to widen in the years to come. According to KPMG study, by 2020 available supply of gas will meet 75 per cent of the demand.

LNG poses two major challenges. For long-term supplies, the price of LNG is generally linked to the price of crude oil, and the prices of RLNG are much higher than the prices of domestic gas, including from the NELP fields.

This forms the first major challenge. The second challenge is the volatility of the prices of such supplies being linked to crude. High prices coupled with high volatility make it difficult for the user industries to plan investments based on LNG. Another challenge is the pipeline network in India. For the country to be able to connect to new markets, its pipeline network needs to grow at a much faster rate.

In the country, in the long-term, the supply of LNG is likely to increase, and would be more expensive than the current price paid for Qatari LNG. If the country intends to attract additional LNG in the long-term, it needs to compete in the global gas markets at prices potentially higher than the current ones; or else the supplies will be taken over by China and other such Asian markets.

India's annual LNG capacity is estimated to reach 50 million tons by 2017 from about 13.5 million tons, as local gas shortages are driving demand for the imported fuel. Pricing is the key factor in determining the balancing point between supply and demand of natural gas. India is largely unexplored in this respect, and efforts need to be taken to develop additional domestic supplies of natural gas. The country is located near major resources of gas in Iran and Turkmenistan, and pipeline interconnections remain a distant prospect. The country is seeing huge potential in LNG, and is constructing new regasification terminals for increasing the existing capacity by half.