Policy
A Direct Deal With Trump Can Let Iran Off The Hook
more...


India To Deepen Ties With Russia In LNG Production, Supplies
more...


Perils Of Deregulation Of Petrol And Diesel Prices
more...


Retailing Of LNG For Long Distance Transportation A Focus Area
more...


Consumer Unlikely To Benefit By Competition In Fuel Retailing
more...

Regulation
OVLís Organisation, Systems and Processes To Be Strengthened
more...


Extension Of Barmer PSC: Who Outwits Whom?
more...


Limited Scope For Private Players In LPG Marketing
more...


CGD Majors MGL, IGL, GGL Get A Rival In Adani Gas Ltd
more...


CPCB Pulls Up Oil Marketing Companies
more...

Alternative Energy / Fuel
BPCL Setting Up Bio Fuel Plant In Odissa To Produce Ethanol
more...

New Projects
OMCs Select Hughes India To Enable Retail Automation
more...


Kreuz Subsea Wins Contract From ONGC
more...


ShapoorjiPallonji, Royal Vopak to set up LPG terminal in Gujarat
more...


LNG Import Terminal At Ennore To Be Commissioned This Month
more...

Market Watch
Puma Energy Seeks License For Retail Fuel Sales In India
more...


OMCs Sign LPG MoU With Government Services Body CSC
more...

Companies
Puma Energy
more...


BPCL Kochi Launches Speciality Product Of Food Grade Quality Hexane
more...


Cairn India To Invest $4 Bn In Rajasthanís Barmer Oil Block
more...

Press Release [FREE Access]
Petro Intelligence Ľ LNG Terminals: A Minefield Of Risks

by R. Sasankan

Sanjiv SinghPetronet LNG’s liquefied natural gas terminal at Kochi – a virtually rusting plant that has been able to utilise just 5 to 10 per cent of its capacity since its inception a decade ago -- is a stark reminder of the risks that intrepid investors face in India’s gas-based industry. When the Narendra Modi government made its ringing commitment to crank up the share of natural gas in India’s energy mix from a lowball 6.1 per cent to 15 per cent by 2030, it sparked renewed interest in establishing LNG regasification terminals across the country’s coastal districts.

Sadly, that fervour has dissipated quickly once investors realised that it wasn’t going to be a hunky dory ride into India’s gas-based business. Cost is the really big issue: the gas has to be imported in the form of liquefied natural gas and then re-gasified before it can be supplied to consumers, which is a very costly proposition when compared with the cost of transporting gas through pipelines, an option that is fraught with its own risks.

The existing LNG regasification capacity remains badly under-utilized. Except for the Dahej terminal of Petronet LNG which had tied up customers before it was commissioned, all the other terminals are operating at sub-par levels. The plight of the Kochi terminal underscores the huge risks that any investor looking to break into this sector must be ready to face. Any private company in PLL’s place would have gone bankrupt long ago. Public sector companies can afford such extravagant luxuries but not private enterprises which are answerable to their nit-picking shareholders.

Petronet LNG Ltd (PLL) is promoted by the four public sector oil and gas companies with their combined investment capped at 50 per cent. They have rarely grilled the management of PLL, largely because investment decisions are taken by the bureaucrats to whom their chief executives report.

Gautam AdaniThere is some speculation about why Indian Oil Corporation (IOC) – one of the promoters of PLL – chose to commit an obvious blunder when it decided to set up an LNG terminal at Ennore in the south Indian state of Tamil Nadu. True, IOC did not go through the tortuous process of signing on consumers before setting up the terminal as PLL did in Dahej. But seen a little differently, it would now appear that IOC had made a master stroke with its Ennore foray as it appears to have scared off other private investors who were hatching plans for LNG plants in the country’s East coast. A consortium comprising Shell, Gaz de France and GAIL had proposed to set up a floating regasification terminal on the Andhra Coast. But when IOC flexed its muscles and went ahead with the construction of the Ennore terminal, Shell and Gaz de France quickly chickened out and dropped out of the consortium, realising that the demand for gas in the East coast wasn’t going to be enough to sustain two such terminals.

The capacity of IOC’s Ennore terminal is 5 million tonne per annum which is being created in phases. Being the most industrially advanced state in the East coast, Tamil Nadu with refinery, fertilizer units and petro chemical plants close to Ennore can provide the basic market for such a terminal. The Ennore plant is expected to be commissioned in the next three months but it may still struggle to tie up an adequate number of consumers to be able to operate at full capacity.

Meanwhile, the Adani group had proposed a 5 million tonne regasification terminal at Dhamra on the east coast in Odisha, the home state of petroleum minister Dharmendra Pradhan. IOC and GAIL together made an informal offer to pick up 49 per cent stake in the Dhamra terminal. IOC booked 3 million tonne capacity at Dhamra but there is still no word about picking up an equity stake.

Chandrababu NaiduThere is one complication that could wreck plans for both Dhamra and the Ennore plants. Andhra Chief Minister Chandrababu Naidu is determined to have a floating regasification terminal on the Andhra Coast. Naidu has the knack to get the right people to invest. Naidu enjoys a good equation with Mukesh Ambani of RIL whose East-West gas pipeline has been rusting after the collapse of gas production at KG D6. If IOC finally agrees to pick up equity in Dhamra, it will insist on a controlling stake, which could see the exit of the Adani group.

If the East coast looks like a virtually no-go for LNG regasification plants because of low demand from consumers, the West coast is not much better. The regasification terminal at Mundra in the state of Gujarat floated by GSPL LNG Ltd, a joint venture between Gujarat State Petroleum Corporation (GSPC) and Adani, is already looking for a strategic partner. IOC got an in-principle approval from its board to pick up to 50 per cent stake in the Mundra terminal, expected to be commissioned by end of 2018.

Enquiries reveal that both the Dhamra and Mundra proposals have hit a logjam and this development is not surprising for anyone who has some idea of IOC’s style of functioning. IOC normally invests in joint venture projects only if it can exercise control. A PSU giant cannot be expected to act otherwise. It has the resources to buy out other partners and will not hesitate to do so if the situation warrants it. But there is absolutely no question of IOC playing second fiddle in a joint venture. GSPC is going through a difficult phase financially and may not be averse to an attractive deal but it must get the Adanis to accept IOC’s onerous conditions. Valuation remains a troublesome issue. A settlement on Mundra is expected to see IOC as the operator of the terminal with a controlling stake.

Even if the Adanis agree to be a junior partner in the Mudra project, it will not be a smooth arrangement. IOC is the big daddy in the refining space and its aggressive style will make it difficult for junior partners to co-exist. The Adanis carry a lot of clout now and they are equally aggressive in framing its business strategy. But it will find the going extremely tough if IOC heads the joint venture. IOC has a lot of heft because of its strong pan-India marketing network. IOC is feared more than it is respected and it seems to enjoy this status.



To download the latest issue 'Volume 25 Issue 15 - November 10, 2018', click here
Petro Intelligence [FREE Access]
India Needs Affordable LNG
more...

When A Total Eclipse Overshadows Exxonís Ambitions
more...

Darker Truths Behind Roadblocks To Mega Refinery
more...

Kuwait Petroleum Finds The Going Tough
more...

Foreign Investment
Regulator Approves Sale Of Mukesh Ambaniís Pipeline To Brookfield
more...

Overseas Investment
WFW Advises Aban Singapore On North Sea Blocks Acquisitions
more...


PDVSA Ships $35 Million Oil Cargo To Pay Dividends To ONGC
more...

Gas Scene
LNG Terminals in India
more...


CGD Factsheet As Of Sept 2018
more...


A total picture about Natural Gas scene including CBM in India
more...


State-Wise Share In CGD Business
more...


Update: Sectoral Consumption of Natural Gas, LNG Import and Total Net Available Gas for Sale
more...


Domestic Gas Scene In September 2018
more...


Declining Rate Of Gas Flaring In ONGCís Fields
more...


Natural Gas In Indiaís Energy Basket
more...


Domestic Natural Gas Price & Global Natural Gas Price trends
more...


Updatew: Existing Gas Pipeline Network, Gas Pipelines Under Execution
more...


Gas pipeline network update
more...


An Update : Capacity Utilization of LNG Regasification Terminals
more...


Domestic Gas Prices & International Gas Prices
more...


Roadmap to setting up a functional Gas Marketing Hub in India
more...


Domestic Gas Scene In totality In Last 3 Years
more...


Month-Wise, Sector-Wise Consumption of Domestic Gas, R-LNG 2017-18
more...


LNG imports have consistently increased over the years
more...


15% Share of Gas in Primary Energy Mix Ė What it Translates to
more...


Salient Features of LPG Profile In Fiscal 2017-18
more...

Data Section
Monthly Upstream Data
Monthly Downstream Data
Historical database
Data Archives
Special Database
IOCís Research & Development Makes Significant Contributions
more...


Oil and Gas Separation, Refineries, Gas Processing Plants, Olefin and Aromatic Mother Plants
more...


Update: Distillate Production in Indian refineries, total and break-up
more...


India: Oil Import - Volume, Value and Price USD / Barrel
more...


Power Shortage Situation In September 2018
more...


Update: Indiaís Crude Refining Capacity , Company-wise, Refinery-Wise As On August 1, 2018
more...


Indigenisation Level Of Hardware in Gas Transportation - LNG, Pipelines
more...


Petroleum Products Import In September Registers Impressive Growth, Export Declines.
more...


Crude Oil Imports Register Modest Increase In September, OPEC Share Down
more...


Status of blocks under NELP (as on 1st April, 2018)
more...


PNG connections, CNG stations and CNG Vehicles - An update
more...


Oil Indiaís Short Term Growth Plan
more...


Indiaís Consistently Shrinking Self-Sufficiency in Petroleum Products- An Update
more...


Oil Indiaís Long Term Plan
more...


Price Variations In Indian Basket of Crude Oil In September 2018
more...


High Sulphur (HS) & Low Sulphur (LS) crude oil processing (MMT)
more...


Oil Indiaís Competitive Cost Structure
more...


Financial Details Of Oil Companies (FY 2017-18)
more...


Imported Crude & Domestic Crude Oil Processing (FY 2013-14 to 2017-18)
more...

Tenders [FREE Access]
ONGC
more...


ONGC
more...