HPCL in talks with six foreign suppliers for gas at LNG terminal

Hindustan Petroleum, as part of its expansion plan in the LNG segment, is also testing waters to enter the spot market this year


Hindustan Petroleum may market LNG cargoes of 60,000-70,000 metric tonnes. Photo: Reuters
Hindustan Petroleum may market LNG cargoes of 60,000-70,000 metric tonnes. Photo: Reuters

State-run Hindustan Petroleum Corp. Ltd (HPCL) is in talks with six foreign suppliers to source liquefied natural gas (LNG) for its Rs5,400 crore LNG terminal coming up at the Chhara Port in Gujarat.

The company also plans to enter the spot LNG market this year, said two officials aware of the development.

HPCL has an equal joint venture agreement with Shapoorji Pallonji Port Pvt. Ltd to build the 5 million tonnes per annum (mtpa) LNG terminal at Chhara Port. The terminal is expected to be commissioned by 2019.

“HPCL is in dialogue with at least six parties internationally to source gas for the Chhara LNG terminal that it will complete by 2019. Currently, it is studying the segments and catchment areas where it can market its gas,” said the first of the two people mentioned above, speaking on the condition of anonymity as he is not allowed to speak to the media.

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HPCL did not reply to an email questionnaire sent on Tuesday. An HPCL official declined to name the six suppliers citing confidentiality clauses. LNG aggregators and fleet operators such as BP Plc. and Royal Dutch Shell Plc., are among the companies providing access to spot natural gas to interested buyers. Commissioning the terminal will help HPCL source LNG for its own refineries as well as to market natural gas for customers connected through gas pipelines.

HPCL, as part of its expansion plan in the LNG segment, is also testing waters to enter the spot market this year. LNG is sold under long-term contracts and spot. Traditionally, the LNG market favoured long-term contracts but since the drop in crude oil and natural gas prices since 2015, spot trades have assumed significance.

HPCL may market LNG cargoes of 60,000-70,000 metric tonnes. This, the second of the two persons said, will help the company establish itself in the gas business before it commissions its LNG terminal.

According to Bloomberg, spot LNG prices for Singapore as on 3 January stood at $9.062 per million British thermal unit (mBtu) against $8.82 per mBtu.

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In keeping with the government’s plan to more than double the share of natural gas in India’s energy mix—from 6.5% in 2015 to 15% over the medium term—energy companies are bullish on diversifying into this segment.

“This would necessitate investments of at least Rs65,000 crore (nearly $10 billion) just to augment infrastructure for gas import and for laying pipelines. Energy mix refers to the proportion of various fuels in overall energy consumption,” Crisil Research said in a press statement dated 22 December 2016. The government’s move is in line with a commitment it made at the Paris meeting on climate change (called the Conference of Parties 21, or COP 21), to reduce the carbon intensity of India’s gross domestic production by a third from 0.37 kg per purchasing power parity of GDP in 2005. “Renewables are likely to be the key driver, with the government targeting 175 GW of renewable power by 2022. Gas, though a relatively cleaner fuel than coal and other liquid fuels, continues to be a higher cost option, which restricts its usage. Weak pricing power of end-users further limits usage in the power and urea sectors,” added Crisil Research.

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