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Petro Intelligence » Whisky On The Rocks?
Incredible it may sound: in gas-starved India, there are no takers for the LNG contracted by Petronet LNG Ltd (PLL) for its Kochi terminal. Way back in 2009, PLL headed by the secretary in the Ministry of Petroleum and Natural Gas signed a contract with Gorgon LNG project of Australia for supply of 1.4 million ton per annum of LNG to be delivered from 2014. So far the utilisation of the terminal has been only 5 per cent of its capacity. The deal was signed when Murli Deora was the minister for petroleum and natural gas. www.indianoilandgas.com was the only one in the Indian media to report that deal looked fishy and our article in the Petro Intelligence column titled: Whisky On The Rocks (April 10, 2011 Issue) predicted that there would not be many takers for this gas. Our prediction, based as it was on interactions with informed people in the industry, has proved correct. For the benefit of our readers who might not have read this exciting piece, we are reproducing it.

-------------------------------------------------------------------------------------------------------------------------------

Whisky On The Rocks?

(Indian Oil & Gas, April 10, 2011 issue)

 

R.S. PandeyThe question in the headline is a deliberate one -- and no, we haven’t turned into scandal mongers. The metaphor will be explained in a bit.

Watchdogs are usually a nuisance but everyone’s terrified of the hound. These days in Delhi, the hound goes by an acronym: CAG (the Comptroller and Auditor General of India).

Last November, the hound in its 96-page report on 2 G spectrum allocation convulsed the political firmament: disgraced telecom minister Andimuthu Raja has been forced out of office and is currently cooling his heels in Tihar jail along with his buddies-in-crime. With a chargesheet filed against them by the Central Bureau of Investigation (CBI), more trouble awaits them.

But there’s one place that even the hounds can’t go – and that is Petronet LNG Ltd. For all practical purposes, this entity is government- controlled. Since inception, it has been headed by the secrP. Das Guptaetary in the ministry of petroleum and natural gas. Moreover, 50 per cent of its equity capital is held by four oil and gas PSUs: ONGC, IOC, BPCL and GAIL. Even as it enjoys the tough shield of protection afforded by its state-owned stakeholders and a government of India secretary, it operates technically like a private company – a unique arrangement that works wonderfully for everyone.

PLL’s dealings run into billions of dollars every year and anecdotal evidence indicates that there’s no business that can whip up gargantuan kickbacks like LNG. The mechanism is built into the system and even honourable men are sucked into the maw of this grubby money-making machine.

The latest buzz in the petroleum industry is the 1.4 million ton LNG import contract that Petronet LNG struck with the Gorgon Project of Australia two years ago to provide supplies to its upcoming LNG terminal at Kochi. S. Sundareshan

The price that was negotiated, and finalised subsequently, looks so high that marketer GAIL is finding it difficult to sell the gas. NTPC, which was believed to be the single biggest consumer of the imported LNG for its power plant at Kayamkulam, is insisting on a price rollback. Until that happens, it has no plans to sign a sale purchase agreement. GAIL is now in a fix since it had entered into a back to back agreement with PLL.

We do not want to use journalistic expressions like scam or bungling. In terms of scale, the LNG fiasco doesn’t come anywhere near Raja’s 2G spectrum scam.

It cannot be called bungling either as the expression has an element of non-intention which we are not prepared to believe. It certainly is a deliberate deal that is shaping into a scandal.

PLL is theA.K. Balyan brainchild of Dr Vijay Kelkar, the then petroleum secretary, who believed that for an undertaking to function effectively, it should be freed from the clutches of enforcement agencies. Kelkar had noble intentions but his grand plan was subverted by the minions who came after.

Kelkar had wanted K.K. Kapoor, the then CMD of GAIL, to head it. Kapoor is a financial disciplinarian who, along with Vineet Nayyar, turned GAIL into an efficiently-run PSU. It is a different story that Kapoor -- who did not have the gracious art of entertaining senior bureaucrats in five-star hotels – did not get to head PLL when it was formed.

The price of LNG is linked to that of crude. If the price of crude is $ 100 per barrel, the gross price of LNG in Australia will be $ 14.6/mmbtu which means the net price in Australia should be $ 16.1/mmbtu. If you add in other charges for transportation, customs duty, re-gasification etc, the delivered price of gas rises to $ 20/ mmbtu. Had itB.C. Tripahi been sourced from Qatar, on the basis of the existing arrangement, the delivered gas would not have cost more than $ 15.6/mmbtu.

The facile explanation that is being trotted out now is that Qatar did not have an LNG surplus when the Gorgon deal was negotiated. It does now. But it does beg the question: why was there such a tearing hurry to wrap up the deal at a time when global crude prices were ruling high?

Qatar’s petroleum minister had gone on record in Delhi saying that he was prepared to meet the total “requirements of his good friend Murli Deora”, who was India’s petroleum minister at that time. Shell and GSPC bring cheaper LNG to India through the Hazira terminal.

There is no one who is prepared to own up to the snafu. So, the bureaucrats have now come up with a brilliant plan to paper over the cracks. It’s called price pooling. The basic idea is that the outrageously expensive LNG from Australia can be blended with cheaper domestic gas so that the average price becomes affordable for everybody.

That brings us to the metaphor in the headline: the deal makers have walked off with the scotch whisky, leaving the marketers with a lot of soda that has clearly lost its fizz. They can neither gulp it down nor persuade the others to buy it off them.

 



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