NEW DELHI:Indiais expected to sign an agreement withTurkmenistanthis week that will secure 38 million standard cubic meters per day gas supply from the Central Asian country at around $11.5/unit, government officials said.
Oil minister Jaipal Reddy is visitingTurkmenistanon Tuesday to sign the gas sale purchase agreement (GSPA) this week, officials said.
The GSPA would pave way for construction of $7.5 billion trans-national pipeline, which would also supply gas toAfghanistanandPakistan.
Turkmen gas would be significantly cheaper than liquefied natural gas (LNG) sold in spot market, government and industry officials said.
Gas-starvedIndiapays a spot price of about $16 a unit for LNG. Petronet LNG has recently contracted LNG import fromAustralia’s Gorgon project at $15.8 per unit while Gail’s 20-year contract with US’SabinePassworks out to be around $10-11 per unit.
The cabinet approved the 1,680-km gas pipeline project last week. EThad first reported on Mar 29 that the cabinet’s approval would pave way forIndiasigning a GSPA withTurkmenistan.
“At the current market price, the landed price of gas would be little more than $11/unit. But price will fluctuate as it expected to be linked with international fuel oil rates,” one official said requesting anonymity.
India, which was at the end of the 1,680 km-long pipeline, was worried about landed cost of gas and wanted to invest in the project only if the Turkmen gas was comparable with long-term LNG deals.
Indiaplans to import 38 mmscmd gas from the central Asian country, which will be more than the current output of the country’s biggest gas fields in the D6 block.
Indiahas also finalized transit fee and other related matters withAfghanistanandPakistan, as the pipeline would cross their borders.Pakistanhas already assured that it would charge a uniform transit fee, government officials said.
The GSPA will be executed by state-run gas utility Gail, which isIndia’s nominee for the $7.5-billion pipeline project. The project is also known as TAPI pipeline, representing initials of four partner countries.
After GSPA is signed, four partners would constitute a consortium by 2013 that would build and operate the pipeline. TAPI project would be completed by 2016, officials said.
Officials said it was already decided among partners that security of the pipeline would be ensured by the countries on the way.
Turkmenistanhas agreed to supply 90 mmscmd gas to the three consumers.IndiaandPakistanwill get about 38 mmscmd gas each while balance will go toAfghanistan. The proposed pipeline will start from the Dauletabad gas field in southeastTurkmenistanand after 145 km stretch in the country enterAfghanistan. After traversing 735 km inAfghanistanand 800 km inPakistan, it will cross intoIndia.
GOVERNMENT TO PROVIDE RS 38,500 CRORE SUBSIDY TO OIL COMPANIES FOR Q4 FY12
NEW DELHI: The government will dole out Rs 38,500 crore additional cash subsidy to public sector oil companies as part of compensation for selling diesel, domestic LPG and kerosene below cost in 2011-12 fiscal.
“Yes, the Finance Ministry has agreed to give Rs 38,500 crore compensation for the January-March quarter,” a top oil ministry official said here.
The cash payout would be on top of Rs 45,000 crore that Indian Oil Corp (IOC), Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) got for the first nine months of 2011-12 financial year.
The three firms had lost a record Rs 1,38,541 crore on selling diesel, domestic LPG and kerosene at government- controlled rates that were way lower than market price. Together with the additional payout agreed, the government will make up 60 per cent or Rs 83,500 crore of the total revenue loss.
Upstream companies Oil and Natural Gas Corp (ONGC), OilIndiaand GAIL India have been asked to shell out an additional Rs 1,640 crore – over the Rs 53,360 crore indicated earlier — as their share of the subsidy burden.
The cash subsidy and assistance from upstream oil companies would bridge almost all of the Rs 138,541 crore of revenue loss, the official said. “Without this, the three companies would have for sure posted huge losses.”
IOC is to declare its fourth and 2011-12 annual financial results on May 28, while HPCL would do so on May 29. BPCL has scheduled a board meeting for the results on May 25.
ONGC, OIL and GAIL had in April-December 2011 contributed Rs 36,894 crore towards fuel subsidy and they would provide another Rs 18,106 crore in the fourth quarter.
“The share of upstream companies (in total under recoveries or revenue loss) works out to be 39.7 per cent. In 2010-11, they had borne 36.75 per cent of the under recoveries,” he said.
Besides losses on diesel, domestic LPG and kerosene, state fuel retailers also lost Rs 4,890 crore on sale of petrol, a commodity which was decontrolled in June 2010 but rates of which haven’t been raised due to political considerations.
The oil marketing companies also incurred an interest payout of Rs 4,800 crore due to delay in payment of cash subsidy by the government, the official said, adding that both of these demands have not been met by the Finance Ministry.
“So in effect, the share of oil marketing companies would be the loss they incurred on sale of petrol and the interest outgo,” he said, adding that the Oil Ministry had asked for Rs 49,870 crore to compensate the three firms for selling fuels at government-controlled rates, and towards interest compensation.
PMO BACKING FOR RELIANCE ON GAS PRICING DRAWS FIRE
NEW DELHI: The PMO’s decision to back the demand by Reliance Industries Limited (RIL) for upward revision of KG-D6 gas prices has divided both the government and energy stakeholders, with the Petroleum Ministry and the Association of Power Producers (APP) remaining strongly opposed to the move before the scheduled 2014 deadline.
Any hike in prices before then, the latter say, is likely to benefit the Mukesh Ambani-owned RIL by around $8 billion and sharply increase the government’s subsidy bill.
The Prime Minister’s Office has referred RIL’s demand for gas price revision to the Petroleum and Natural Gas Ministry despite the latter’s earlier refusal to tinker with the 2014 date, suggesting that legal opinion on the issue be sought and placed before the Empowered Group of Ministers (EGoM) headed by Finance Minister, Pranab Mukherjee.
“It is very difficult to understand why the PMO should be pitching for private interest instead of the larger public interest. There is clearly a design to benefit the private sector at the cost of the exchequer and the consumers,” an official in the Petroleum Ministry said. “It is unfortunate that instead of addressing [the] substantive issues raised by me, the PMO has gone ahead and sought a legal opinion on the gas price revision,” said Communist Party of India (Marxist) MP Tapan Sen, who has often raised questions about RIL’s KG-D6 gas operations in Parliament.
The Petroleum Ministry has frequently gone on record – the latest was in January and March this year — that there is no case for gas price revision as such a move would put an additional burden of nearly $8 billion on the exchequer and consumers. It has also maintained that the current price of $4.2/mmBtu for KG-D6 gas was valid till February 2014 and would come up for revision only at that time.
“The Petroleum Ministry has communicated to the PMO as well as the Law and Justice Ministry that there are no legal grounds or financial justification for revision of gas prices at this juncture and the matter should be treated as closed. Any revision will drastically impact a number of sectors including fertilizers, power and textiles and result in massive cost escalation for consumers. But the PMO is adamant on [this],” a senior Ministry official said.
RIL wants the gas price hiked from the current $4.20/mmBtu to $14.20/mmBtu. According to ministry calculations, this would result in an approximately $8 billion increase in revenue for the company in the next two years while the increase in petroleum profit for the Government would only be $0.438 billion. The higher price would also burden the exchequer by $8 billion as power tariffs go up and fertilizers become costlier, inflating the subsidy bill. The current price was fixed by the EGoM in 2007 for a five-year period from the date of commencement of gas supply.
Interestingly, the APP has also warned that RIL’s demand for a gas price hike would push up electricity prices by 50 paise per unit for every dollar increase in gas price.
“No consideration should be given for increasing the price of natural gas from the current rate of $4.2 per million British thermal unit (mBtu),” it has stated in a representation to the Petroleum Ministry and EGoM. “This would make the fuel unaffordable to the power sector,” APP Director General Ashok Khurana said.
OMCs TO REPORT PROFITS IN Q4 ON SUBSIDY BOOST
NEW DELHI: Oil marketing companies IOC, HPCL and BPCL would be able to report profits for the fourth quarter of 2011-12 on the strength of their refining margins and the extra government subsidy to compensate about 80% of their losses incurred in the period due to selling auto and cooking fuels below cost.
As per a petroleum ministry communication to oil retailers on Monday, IOC would get R20,861 crore, HPCL R8,486 crore and BPCL R9,153 crore as state subsidy for the January-March period of 2012, said sources.
The total subsidy for the period works out to R38,500 crore, while retailers will have to absorb the remaining loss of close to R10,000 crore.
However, a 4% appreciation of the rupee during the period would depress even the companies’ refinery margins for the fourth quarter of the 2011-12, limiting their profitability.
Refinery margin is what they earn in dollar terms while transferring finished petroleum products at global (import parity) prices to their marketing divisions, which retail these at state-set prices, incurring what is called under-recoveries or marketing losses.
Retailers do not offset their refining margins against their marketing losses but if they have to absorb the unmet under-recoveries, it affects their profits.
Sources said that upstream companies ONGC, Gail India and OilIndiahave shared Rs 55,000 crore of retailers’ losses. They have absorbed IOC’s under-recovery of Rs 29,961 crore, HPCL’s Rs 12,082 crore and BPCL’s 12,957 crore.
With the sanction of subsidy for the fourth quarter, IOC, HPCL and BPCL would now show their respective entitlement in their profit and loss accounts as revenue grant from the government. The actual receipt of cash will take time. It would actually be disbursed from the Rs 43,580 crore earmarked for the 2012-13 fiscal, which means the government will have to substantially increase the subsidy for the current fiscal in the supplementary demands for grants expected later in the year.
Government subsidy has now gone up to Rs 83,500 crore for the last fiscal. Economists said that the artificial suppression of fuel prices is getting reflected in government finances in a major way now. Deregulating the price of fuel, particularly diesel, is the best solution for sustainable energy pricing in the medium term, said a leading economist.
OVL PROVISIONS $408 M ON IMPERIAL
MUMBAI: ONGC Videsh (OVL), the overseas arm of state-owned ONGC, has made an impairment provision of $408 million on Imperial Energy – or a fifth of what it had paid for its much-hyped $2.1 billion acquisition – because of poorer-than-expected performance of Russia-focused explorer, hurting OVL profits, which rose marginally by 1% to Rs 2,721 crore in FY12.
OVL oil production has fallen by 8% to 6.2 metric million tonnes (mmt) and gas production has fallen by 6% to 2.5 billion cubic metres (bcm) due to unrest inSudan&Syria. Barring,Sudan&Syria, OVL production remained stagnant at 2010-2011 level.
“A provision for impairment of 1,953 crore ($ 408 million) has been made in respect of subsidiary, Jarpeno Ltd. as the asset is performing lower as compared to the estimated and the ‘value in use’ computed for the asset as on 31st March, 2012 was lower than its carrying value,” said an OVL statement late Monday.
MRPL GETS OIL CARGO INSURED WITH IRAN, MAY DO MORE: SOURCES
NEW DELHI:India’s MRPL has got a crude cargo insured by an Iranian firm, the first state refiner to do so, after local firms refused cover even before European Union sanctions barring such deals start in July, sources with knowledge of the matter said.
Mangalore Refinery and Petrochemicals (MRPL) “recently got a cargo insured by an Iranian firm and other cargoes can also be insured fromIran. The company will do that on a case-by-case basis,” said one of the sources.
The sources declined to be named due to the sensitivity of the subject.
TheUnited Statesand European Union are trying to squeeze the revenuesIranmakes from its oil exports to force it to halt a nuclear programme they fear will be used to make weapons.Tehransays it needs the technology for power generation.
China,Japan,South KoreaandIndiaare the main buyers ofIran’s 2.2 million barrels per day (bpd) of exports. All have made steep cuts in imports this year against a backdrop of rising international pressure onTehran.
MRPL is one of the major Indian clients ofIran’s oil and its insurance policy with New India Assurance Co Ltd for cargoes lapsed earlier this month.
CIL FOCUSES ON OUTPUT, NOT SHALE GAS DIVERSIFICATION
KOLKATA: Coal India Ltd (CIL) has said its focus, for now, would be on raising output, not on diversification.
The government-owned company, the country’s near-monopoly producer, had diversification plans on coal liquefaction (CTL) and gasification. Last year, Partha S Bhattacharya, former chairman and managing director (CMD), had indicated CIL might foray into production of shale gas.
“We have to do diversification, but at this stage, our focus is only on increasing coal production and to meet the target. If we have to look into it, the foray would be to coal and coal-related items, rather than venturing into unrelated areas like shale gas,” said S Narsing Rao, the present CMD.
It has prepared a capital investment plan of Rs 32,000 crore for the next five years. The production target in 2012-13 is 464.1 million tonnes and it needs clearance for 70-odd projects from the government if it has to sign new fuel supply agreements with power companies.
The company had plans to foray into a CTL project with Sasol of South Africa, which has one of the largest CTL projects in the world, at Secunda in that country. Last year, CIL had written a letter to the coal ministry for allocation of the Deocha-Pachami block inWest Bengal, with an estimated reserve of at least 19 billion tonnes, for the CTL project. Sasol and the Tata Group had formed a joint venture for a CTL project in Odisha.
When asked about CIL’s plan, Rao said, “This is an important decision which the nation has to take, not CoalIndiaalone. Except for Sasol, CTL projects are yet to take off in other parts of the world. InChina, too, CTL projects are yet to come up. So, in the Indian context, it would take some time to be a reality.”
He also hinted about coal-bed methane (CBM) as a possible option. “It needs different regulatory and technological requirements. Our exploration is up to 600 metres and exploitation is up to 300-400 metres. For CBM, you have to go up to even 1,000 to 1,200 metres,” he said.
SOUTHERN RAILWAY FLAGS OFF FIRST RAKE WITH BPCL KOCHI BITUMEN TO BHUTAN
KOCHI: The Southern Railway’s Thiruvananthapuram Division has started transporting bitumen by rakes as part of the consignment from BPCL’s Kochi Refinery toBhutan.
The service, flagged off from here, is as per an MoU signed between the public sector oil company and the Bhutan Government for supply of bitumen for one year.
The cargo is meant for road-laying inBhutan.
This is the first consignment of 12,600 barrels of bitumen and the Railway will move three rakes a month. The cargo movement assumes significance for BPCL-KR as it is the first time it is moving the product by rail and exporting it too.
Each train will consist of 42 wagons and the Railway will generate a revenue of Rs 91 lakh as freight charges from each service, Mr George John, Area Manager, Southern Railway, Ernakulam, told Business Line.
The final destination of the train service is Falakatta inWest Bengaland, from there, the consignment will be moved by trucks to the unloading point, he said, adding that the service will be in full swing after undertaking the necessary infrastructure developments at the loading point, including building a platform.
The Railways will also make round-the-clock arrangements at the loading point, he said.
He termed the service the first international contract for the Railways, which expects to generate more revenues in the coming years.
The Railways christened the service Kairali Black, which extends the concept of Kairali Queen, a dream project of the Thiruvananthapuram Division. Mr Rajesh Agarwal, Divisional Railway Manager, has taken the initiative for this project, meant to showcase Kerala brand products such as spices, cashew and rubber in north Indian markets.
According to Mr John, the Thiruvananthapuram Division is coordinating with government agencies such as the Spices Board, the Coir Board and various transport agencies to move products to different markets, either through wagons or containers. Besides, the division is also transporting petroleum products from BPCL-KR to various parts of the State. An average 80-90 rakes per month move products to upcountry destinations also.
The Railways is also engaged in moving imported fertilisers and cement fromKochiPortto many manufacturing units. Coal movement, which was suspended almost a year and a half back, is expected to re-start shortly, he added.
RELIANCE INDUSTRIES NOT SO BULLISH ON ITS SHALE GAS BUSINESS: REPORT
MUMBAI: Reliance Industries’ shale gas business is going great guns, notes the company in its annual report for FY12 published today. Its production jumped 7-fold within one year, but problems such as low gas prices, high costs and infrastructure constraints to overcome.
The company’s joint ventures will have to look for more liquid rich gas and cut costs to make their investments profitable. In 2010 RIL had entered into three joint ventures (JVs) in theUSshale gas assets.
These were the JVs with Chevron and Carrizo in Marcellus shale play ofPennsylvaniaand Pioneer Natural Resources in Eagle Ford shale Play of South Texas. In addition, RIL also partnered with Pioneer to develop hydrocarbon-transporting pipelines.
FY 2011-12 represented a significant year of growth for RIL’s shale gas business. “As a result of these efforts, gross production from all three JV reported an exit rate of 233 million metric cubic feet per day (MMCFPD) of gas and 34.7 thousand barrels per day of liquids in December 2011 (a 7 fold increase on year-on-year basis),” mentioned the RIL’s annual report.
Pioneer JV was the biggest contributor to this, from which RIL’s production share stood at 41.7 billion cubic feet equivalent (BCFe). With approximately 59% of the total production coming out as liquids this JV will continue to dominate RIL’s revenues from shale assets in theUSeven in FY13.
In comparison Chevron and Carrizo JVs put together produced 10.7 BCFe as RIL’s share during the year. Chevron JV’s production was hampered due to regulatory and other delays, which should ease by mid-2012.
In spite of the growing production, low natural gas prices are making things difficult for the producers. “In 2011 the natural gas production in theUSincreased to 4.8 billion cubic feet per day (BCFD) – a year-on-year increase of 7.9%, which is the largest increase ever recorded,” notes RIL. As the demand failed to grow in line with the supplies US gas inventories bulged to record levels and the natural gas prices fell to 10-year low levels.
Nevertheless, the shale gas exploration and production efforts continue unabated as players focus on liquid rich locations where natural gas is merely a by-product. Such a scenario makes sure that the natural gas prices will continue to remain depressed until there is substantial jump in demand or export of LNG becomes possible – both of which are several years away.
This makes the outlook difficult for theUSshale gas players. RIL acknowledges, “FY 2012-13 will be a challenging year for shale gas, given the continuous weak gas prices, increasing wells costs in Eagle Ford due to market pressures and the need for drilling activity obligations to hold certain oil and gas leases, which will potentially expire in the near term.”
ESSAR OIL – L&T SIGN MOU FOR BITUMEN SUPPLY
MUMBAI: Essar Oil, amongst India’s top private sector refiners, and Larsen & Toubro (L&T), amongst India’s top engineering and construction companies, have signed a Memorandum of Understanding (MoU) for supplies of high quality bitumen for key infrastructure projects in Gujarat undertaken by the engineering giant.
The initial supply agreement is for a quantity of 15,000 metric tonnes over the course of the project and is likely to be extended to other projects in and around the state.
Essar Oil will provide supplies for the Kandla – Mundra Road Project (KMRP) and the Samakhaiyali – Gandhidham Road Project (SGRP), both in the state ofGujaratfrom its state-of-the-art refinery in Vadinar. This cooperation will soon be extended to projects like the Kishangarh -Udaipur- Ahmedabad Road Project, among others.
Essar Oil has existing relationship with L&T under which it supplied about 60,000 metric tonnes of high quality bitumen over the last 18 months for L&T’s various road projects.
The new MoA is over and above that quantity. Essar Oil will ensure availability of quality product for the projects and the relationship with L&T will open up avenues for sales of its refinery product.
“We are happy to be associated with L&T and in essence be a part of the infrastructure development of the country. Essar Oil is fully geared to meet the supply for increased demand of high quality bitumen for road construction,” said Mr. S. Thangapandian, CEO – Marketing, Essar Oil.
POWER PLANT TO SHUT DOWN IF GAS SUPPLIES DWINDLE: LANCO
NEW DELHI: Sounding a warning bell, private power producer Lanco has told the government that any further reduction in natural gas supplies from Reliance Industries’ KG-D6 gas fields would lead to shutting down of power plants.
With KG-D6 field output dropping from 61.5 million cubic meters per day to 32.66 mmcmd over two years, the government has made a pro-rata cut in gas supplies to 25 power plants who were allocated gas from Krishna Godavari basin fields.
The plants, which are currently operating at less than 38 per cent of their capacity because of the supply reduction, may face further cuts in fuel as government squeezes-inDelhi’s Pragati Power Plant and others as KG-D6 customers.
Lanco last week wrote to Pulok Chatterji, Principal Secretary to the Prime Minister, saying it was neither technically nor financial viable for plants to operate at such low Plant Load Factor (PLF) or capacity and will shut down if there was any further cut in supplies.
Delhigovernment wants 0.93 mmscmd of gas for Pragati power, which had missed the bus previously because the project was delayed.
Lanco said the government was contemplating according higher priority to Ratnagiri Power Project in Maharasthra and Pragati Power project at par with fertiliser projects which would mean that pro-rata reduction will not be applied to these projects.
“In such a situation, the gas supplies to other power projects wil reduce to 20-25 per cent level forcing them to shut down the power plants,” Lanco Chief Operating Officer Rakesh Kumar Gupta wrote on May 15.
While the KG-D6 gas supplies dropped, the pro-rata cut was applied only to the 25 power plants which had an original allocation of 28.90 mmcmd. Fertiliser plants, which were allocated about 15 mmscmd of KG-D6 gas, did not face such a cut. And now the government is contemplating giving Pragati Power and Ratnagiri Power the same status as fertiliser.
Ratnagiri Gas and Power Pvt Ltd, which operates the Dabhol power plant, has an allocation of 7.6 mmcmd from KG-D6.
Seeking Chatterji’s personal intervention, Lanco said pro-rata reduction in supplies should apply on all consumers including fertiliser plants till KG-D6 gas supplies improve.
Lanco said the government had allocated gas from RIL’s KG-D6 fields to power plant equivalent to their 70-75 per cent capacity (Plant Load Factor or PLF).
With dwindling output from KG-D6, “gas supplies to power projects have been reduced pro-rata to almost 50 per cent of the allocated quantity,” it said.
INDIAN OIL PETRONAS PLANS RS 497.83-CR LNG TERMINAL
CHENNAI: Indian Oil Petronas Private Limited, a joint venture between Indian Oil Corporation Limited (IOCL) and PetronasMalaysia, is setting up an LPG (liquefied petroleum gas) import-export terminal at theEnnorePort.The new facility will have a tankage capacity of 30,600 tonnes and will attract an investment of around Rs 497.83 crore.
Union minister of state for petroleum and natural gas R P N Singh informed the Lok Sabha that the IOC was proposing to set up an LNG (liquefied natural gas) import terminal atEnnorePortwith storage and regasification facilities of 5 million metric tonne per annum capacity at an estimated cost of Rs 4,320 crore.
IOC has entered into a memorandum of understanding and subsequently an HoA (heads of agreement) with the Tamil Nadu Industrial Development Corporation (Tidco) for partnering the project, he said. In addition, the minister said, Indian Oil Petronas was setting up an LPG import-export terminal atEnnorePortand that the construction was in progress.
The LNG terminal is expected to be completed by March 2016, while the LPG terminal is expected to be commissioned by August 2012, subject to clearances from the Coastal Regulatory Zone and the and ministry of environment and forests.
RIL SEEKS $1 BILLION LOAN TO FUND PETROCHEMICALS, TELECOM EXPANSION
NEW DELHI: Reliance Industries is seeking a loan of about $1 billion to fund its petrochemicals and telecom expansion.
RIL has approached banks for the five-year loan, sources privy to the development said.
A company spokesperson did not immediately offer any comment.
RIL has lined up a $ 12 billion expansion of its petrochemical business, the largest since completing its second oil refinery in 2008.
The company had earlier this month raised $ 2 billion as loan from German banks.
RIL is investing over $ 12 billion over next 4-5 years in the refining and petrochemical industries.
It is setting up an $ 4 billion petroleum coke gasification project that will produce synthetic natural gas that will replace expensive LNG as fuel.
Also, it is spending $ 8 billion on adding capacities of PFY, PET, polyester and intermediate chemicals such as PTA and paraxylene, besides adding new products such as carbon black and rubber.
TURN ON TAPI
India needs gas from Turkmenistan to make up for the KG D6 shortfall
What is the TAPI project?
It is an ambitious cross-border natural gas pipeline to pump clean fuel fromTurkmenistanto customers inAfghanistan,Pakistanand India (TAPI) through a 1,700 km gas highway to be built by a consortium of companies at an expense of $7.6 billion. It would facilitate a natural gas trade of 90 million metric standard cubic metres a day (mmscmd). One mmscmd is sufficient to make 220 MW of power. Of the total gas traded, 14 mmscmd would go toAfghanistanand 38 mmscmd each would go toIndiaandPakistan. State-owned gas transporter Gail India would lift the gas for Indian consumers. The project is expected to be operational by 2016.
Why do we need this pipeline?
Indiais pinning its hopes on manufacturing-led economic growth over the next five years, but finding adequate energy supplies to power that dream is an uphill task. Asia’s third largest economy is now struggling to replace the crude oil supplies from US-sanction hitIran. On the other hand, it needs heavy investments to build more terminals to handle the natural gas imported in frozen form (LNG) from global markets at exorbitant rates to substitute the dwindling domestic supply, which is three-to-four times cheaper due to artificially suppressed regulated prices. Shipping liquefied natural gas (LNG) from the North American continent, where it is cheaply available, requires huge investments to first liquefy the gas at the exporter’s end and then to re-gasify at the importer’s shores, in addition to the freight cost, all of which reduces its attractiveness. The TAPI project could offer some relief as it could fetch gas fromCentral Asiaat a price that is lower than the prevailing global spot market prices—about $14-16 per million metric British thermal unit (mmBtu), a unit of energy. North Indian industries would benefit more from the TAPI project due to their geographical proximity.
What is the potential for growth inIndia’s gas market?
India urgently needs to replenish its natural gas sources in the wake of a projected fall in the output of Reliance Industries’ D6 block in the Krishna Godavari basin, which, in 2010-11, had accounted for more than a quarter of the country’s total gas output. Production from the field is likely to fall to an all-time low of 20 mmscmd in 2014-15, as per official estimates. That is just enough to meet the tightly allocated supplies to the fertiliser, LPG extraction and city gas distribution units, leaving most of RIL’s gas-based power capacity of 6,790 MW to either lower their shutters or buy expensive LNG. The scarcity of natural gas is also delaying new gas-based power and fertiliser projects.Indianow has the capacity to produce 16,640 MW every year using natural gas, of which about 5% is powered by LNG. These existing plants are running way below their full capacity. According to a study commissioned by Gail India, natural gas’ share in the country’s total energy basket will go up from 10% now to 25% in the next 15 years.
What is the shortfall of gas at present? What is the projected incremental demand in the short term?
Indianow consumes about 170 mmscmd of gas, of which nearly 28% is imported LNG. The power sector, which now consumes about 77 mmscmd, would need about 60 mmscmd more this fiscal and an equal amount of incremental supplies in the next. That, however, is only a very conservative estimate. According to the power ministry, the total requirement of proposed power plants, the expected date of commissioning of which is yet to be certified by the Central Electricity Authority (CEA), is around 600 mmscmd. Fertiliser producers, who now use about 40 mmscmd, too would need more gas in the coming years. (See table)
What are the risks involved in the TAPI project and how are they sought to be resolved?
Since the proposed pipeline passes through certain conflict zones, a terror strike on the infrastructure cannot entirely be ruled out.Indiamaintains that it would pay only for the gas that it has received at its facilities. The participating nations had signed a Gas Pipeline Framework Agreement in December 2010 to address security related issues. Each participating nation is responsible for the safety of the stretch of pipeline passing through its territory.
What is the pricing model for gas fromTurkmenistan?
The price and utilisation of imported gas is market-driven, unlike the gas produced domestically, which is subject to strict policies of pricing and usage. Parties to the project from the Indian side, including the government, Gail India and potential industrial buyers, would like the price of gas fromTurkmenistanto be lower than the LNG price.IndiaandTurkmenistanhave agreed on a pricing formula, which is not as volatile as the crude oil price and is a standard in global gas contracts. A Gas Sale and Purchase Agreement (GSPA) will be signed soon. The transportation cost is yet to be fixed, but it is known thatIndiawould be payingPakistanandAfghanistana transit fee for using their territory to ship gas.
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