India's Location to Help Secure Upper Hand in Future LNG Market

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Researched by Industrial Info Resources (Sugar Land, Texas)--According to published reports, the Asia Pacific region is likely to emerge as a central hub for liquefied natural gas (LNG) by 2020. Subsequently, India will be in a position to take advantage of LNG prices amidst the forecast of a global oversupply of LNG by virtue of its strategic location between two important LNG-producing regions: Australia and the Middle East.

Estimates reveal that by 2012, the demand for LNG in India will reach 280 million standard cubic meters per day, compared to a supply of approximately 180 million to 200 million standard cubic meters per day, resulting in a major gap between demand and supply. This gap will have to be minimized by imports, most of which will have to come from Australia and the Middle East. The estimated LNG demand-supply gap in India is likely to drive the development of new infrastructure to facilitate LNG imports.

The Kochi LNG terminal, owned by Petronet LNG Limited (BSE:532522) (New Delhi) and being constructed in the southwest Indian state of Kerala is the first of its kind in southern India and ranks fourth in the country for size, after similar facilities at Dahej and Hazira in the western state of Gujarat, and at Dabhol in Maharashtra.

News reports suggest that Petronet is in discussions with Qatar to obtain an additional 3.5 million tons of LNG via its new project in Kochi and the other three terminals that are already in place in India.

Petronet Financial Director Amitabh Sengupta recently said, "We require around 2 million tons per year of LNG at Kochi and 1 million to 1.5 million tons per year at Dahej." The LNG terminal at Dahej has an installed capacity to process 10 million tons per year of LNG. Of this, 7.5 million tons per year is sourced from Qatar's Ras Laffan Liquefied Natural Gas Company (RasGas) (Doha, Qatar).

According to the Independent Statistics and Analysis arm of the Energy Information Administration (EIA) (Washington, D.C.), the current price of LNG is approximately $4.27 per million British thermal units (Btu). EIA forecasts that natural gas prices are likely to remain low through 2012. The Henry Hub Spot Price estimates that prices this December will reach $5.14 per million Btu.

According to a statement by India's minister for petroleum and natural gas, Murli Deora, India's capacity to import LNG will rise 7 million tons per year and is expected to reach 20 million tons per year by 2012.

Deora told local media: "The LNG infrastructure in the country is being expanded. The capacity of the Dahej terminal was doubled last year. Work at Kochi LNG terminal is under way. Dabhol terminal will be commissioned soon. So the LNG regasification capacity in the country will reach a level of 20 million tons per year by the year 2011-12."

S. Sundareshan, the secretary to the government for the ministry of petroleum and natural gas, said: "We have to move to a situation where, irrespective of the source, domestic gas should be equitably priced in the country. The government is moving towards it, and we hope to have a policy in place soon.''

Echoing concern that fighting between the Petroleum & Natural Gas Regulatory Board (New Delhi) and the petroleum ministry could lead to problems with India's infrastructure capability to deal with large quantities of LNG imports, Abdulla bin Hamad al-Attiyah, Qatar's deputy premier and minister of energy and industry, said that private and public sectors need to work together to make sure that valuable energy resources are utilized in an efficient manner.

Speaking at the Sixth Asia Gas Partnership Summit, al-Attiyah said, "Agreeing on mutually acceptable terms and conditions, including price, is not the only challenge to securing long-term energy supplies. Developing and financing adequate receiving, transportation and distribution infrastructure to match energy demand is another challenge."

According to the Investment Commission of India, the outlook for LNG use in India is positive, with a high gross domestic product (GDP) growth rate and improved road infrastructure likely to drive demand for LNG in the country. More than 100 million standard cubic meters per day of LNG demand is projected in the next four years. The commission also cites several unexplored areas of potential growth, including LNG import infrastructure--namely, regasification terminals and pipelines.

Petronet's chairman, R.S. Pandey, said in a statement to shareholders that he was optimistic about the "LNG receiving, storage & regasification terminal of 2.5 million tons per year capacity, expandable to 5 million tons per year at Kochi." He also added that Petronet had reached an agreement with subsidiaries of commodity petrochemicals manufacturer and marketer Exxon Mobil Corporation (NYSE:XOM) (Irving, Texas). By virtue of this agreement, ExxonMobil's subsidiaries will supply 1.5 million tons per year of LNG from the Gorgon project in Australia, with the "potential for additional volumes for 20 years to the Kochi LNG terminal."

Pandey said, "The company is in talks with various LNG suppliers for sourcing additional LNG required for the expanded capacity of Dahej as well as for the Kochi project."

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