Indian Oil Corp. Ltd (IOC), which planned to import liquefied natural gas (LNG) to meet growing demand for gas in India, has been unable to sign a deal for long-term supplies with Algeria, a setback that means the company cannot start work on its proposed regasification plant in Ennore near Chennai.
IOC needs to secure long-term gas supplies before it starts work on its 2.5 million tonnes per annum (mtpa) LNG terminal (which can be increased to 5mtpa) at Ennore. The success of any such terminal, where LNG is brought in on ships and regasified, depends on the ability of the company building it to source LNG in an international market that is becoming increasingly competitive.
Gas is transported in liquid form, usually on ships, and regasified (or converted to gas) on landing. India faces a severe shortage of gas. It needs around 180mscmd (million metric standard cubic metres per day) of LNG in 2007-08 while domestic production is around 81mscmd.
“Algeria has not been able to commit (to gas supplies) on a long-term basis (25 years). We cannot start work on the terminal until and unless the supplies are secured. We are now trying for gas from Qatar and Australia,” said a senior IOC executive who did not wish to be identified.
IOC planned to source gas at a freight-on-board price of $4-5 per million metric British thermal units (mBtu) from Algeria as reported by Mint on 24 April, 2007.
Algeria aims to export 85 billion cu. metres of gas by 2010, up from about 62 billion cu.m now. However, the spike in crude oil prices has pushed up LNG prices and the Algerians are reluctant to enter into long-term contracts, even at $5-7 per mBtu.
This is not the first time unavailability of gas has come in the way of a company’s plans to set up an LNG terminal. Limited availability of LNG for import forced Hindustan Petroleum Corp. Ltd to suspend its plans of setting up a five mpta LNG terminal at Mundra in Gujarat.
And Petronet LNG Ltd’s plans to set up an LNG terminal at Kochi, in Kerala, have been delayed because of the company’s inability to enter into long-term contracts for gas supplies as reported by Mint on 23 January.
“The different and evolving LNG environment today and tomorrow demands a mind-shift by many players away from the predominant linear fixed supplier and buyer chain of supply to a more flexible, disaggregated model of the market,” Deepak Mahurkar, associate director, oil and gas industry practic at audit and consulting firm PricewaterhouseCoopers had earlier said while commenting on the inability of Indian companies to secure gas supplies.
With the economy expected to grow at around 9% a year, natural gas imports into India are expected to increase from 5mtpa to 20mtpa by the end of 2012.
India has only two LNG regasification terminals, both are located in Gujarat. One is owned by Petronet LNG and the other by Shell India. Other terminals in the pipeline include one attached to the Dabhol project (5mtpa), and one each in Kochi (5mtpa) and Mangalore (1.25 mtpa).