Petronet LNG capitalises on growing demand for imported LNG in India
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Petronet LNG is expanding its capacity by 5 million tonnes per annum to 17.5 million tonnes per annum. It is expecting approval from DFR next month. Earlier it was expected that its Kochi terminal will commence its production in two stages of 2.5 million tonnes per annum each stage. But now it is going to commence production at its full capacity of 5 million tonnes per annum. The company is also planning for a Greenfield 5 million tonnes per annum capacity in the Eastern region of India. A feasibility report is being undertaken. These expansions will boost the company’s topline and bottomline in the long term. Revenue for the full year 2010-11 was at Rs.13197 crore. For the full year 2010-11, net profit was at Rs.619 crore.
Growth is assured
Petronet LNG will be investing Rs.3000 crore to expand its Dahej plant’s capacity from the present 10 million tonnes per annum to 15 million tonnes per annum. During this quarter, the Dahej plant exceeded its capacity. Its Kochi terminal expansion will cost Rs.4200 crore. Its second jetty at Dahej will cost Rs.900 crore. This will help the company to utilise the existing capacity by another 25%. The company’s re-gasified volume increased to 135.08 trillion British thermal units as against 99.78 trillion British thermal units in the corresponding period of the previous year. Its Kochi terminal will commence production by the fourth quarter of the current fiscal year. By 2015, Petronet LNG is expected to have a capacity of 25 million tonnes per annum. The company is negotiating with LNG projects in Australia to source supplies for its expansion. The company is planning to introduce employee stock option scheme to control attrition. A strong domestic demand for natural gas has helped the company perform well in the current year. Going by the demand for natural gas, the company is well poised to grow at the same rate in future also.
Price increase does not affect the company
Petronet LNG is not affected by any price increase in LNG as it is able to pass on the hike to its customers. The current spot price of LNG is $15-17 per million BTUs. The company sources 15% of its LNG from spot cargos. For the next four months, the company’s full capacity is already booked. Its customers are prepared to bear any hike in the price of imported LNG. Its long term contract with RasGas has produced a volume of 90 TBTUs. In the second half of the current fiscal year, it is expected to move up to 94 TBTUs.
Entry into power sector
Petronet LNG wants to venture into the lucrative power sector also. However, it is waiting for a firm power purchase agreement from the Gujarat government controlled utility before it invests in a 370 MW gas-based power plant behind the existing re-gas facility at Dahej in Gujarat State. The residual power will be sold in the market as merchant power. In the long run, LNG-based power will be cheaper than imported coal-based power. The company will price its power at below Rs.5 per unit.
Petronet LNG is likely to set up its third LNG terminal at Dhamra port in Orissa. It is its first on the east coast of India. Petronet LNG is also planning to start coastal trade of LNG through daughter vessels. This plan may be initiated in 2012 end after the Kochi terminal becomes operational to big users in Andaman Islands, Sri Lanka and others. The feasibility report is being prepared by the global major Mercator. It will be ready in about a month’s time. Board approval will be obtained by 2011 end. The advantage in the plan is that it will contribute to the company’s plan to create a distributional channel independent of pipelines. In other words, it is like a wireless Wi-Fi connection in Internet. Initially, Petronet LNG will be transporting LNG from Kochi terminal in small cryogenic vessels and will put up small re-gasification facilities at the customers’ end. Initially the company will be selling about 2 million tonnes of LNG to about five large customers in coastal trading. The company is also negotiating for supplying for industrial applications in Andaman & Nicobar Islands and to offer clean fuel solutions for city gas. Opportunities are also sought to supply LNG through coastal trade to customers in Haldia in West Bengal.
In the next two months, the company, along with ONGC Videsh and GAIL plans to acquire interest in the upcoming Yamal LNG in Russia. It will be a backward integration for the company if the acquisition materialises. Yamal is operated by Russia’s Novatek. Yamal has 11 gas fields and 15 oil and condensate fields in the Yamal Peninsula. Petronet LNG is also exploring the possibilities of tie-up supplies in a liquefaction facility in Andarko Petroleum-operated field in Mozambique. Videocon and BPCL hold 10% equity interest each in the gas field already.
Petronet LNG is negotiating with US-based Cheniere Energy Inc and Freeport LNG to source liquefied natural gas (LNG). There were reports in 2010 that Cheniere Energy and Freeport LNG, along with Macquarie Group Ltd had stated their plans to construct facilities along the Gulf of Mexico to export LNG to West Asia. Cheniere is planning to start exporting LNG from its US terminal from the year 2015 onwards. Petronet LNG is receiving 7.5 million tonnes per annum of LNG from Qatar for its Dahej terminal in Gujarat. For the Kochi plant, Petronet LNG has already struck a deal with Australia’s Gorgon project for the supply of 1.5 million tonnes per annum. Petronet LNG has also concluded a deal with Russia’s Gazprom to buy 2.5 million tonnes per annum of LNG. Petronet LNG has kept its options open for procuring LNG on long term, medium term, short term and if necessary on spot basis. This indicates the excellent planning of the company to meet its future needs adequately.
Growing demand for imported LNG in India
G.C. Chaturvedi, Petroleum Secretary stated recently that India’s gas demand is 179 million standard cubic metres every day whereas local supply is less than 140 million standard cubic metres. This demand-supply gap is rising. Therefore, the company’s services will have a good demand in the foreseeable future. India’s demand for the imported LNG is projected to rise sharply in the coming years. Petronet LNG is India’s largest importer of LNG. According to FACTS Global Energy, which monitors international trends in gas and oil, India’s LNG imports in 2011 will rise by 40% to 12.5 million tonnes. Platts, global provider of metals and energy information, stated that India’s LNG imports increased by one third in March 2011 to 0.933 million tonnes. There are unconfirmed reports that in order to overcome production shortfall in D-6 Block, a consortium of GAIL, Petronet LNG, Hazira LNG, GSPC and Reliance will be importing around 36 extra cargoes of LNG this fiscal year. India’s real estate developer Hiranandani group is planning to set up an eight million tonnes per annum LNG terminal at Dighi port in Maharashtra State for captive use at its upcoming power plant and to cater to the customers in the fertiliser and power industries. The same group is also constructing a gas-based power plant in Talegaon, Pune.
Transporting LNG through road
To make LNG available for the customers who do not have links to the gas pipeline network, Petronet LNG is planning the use of cryogenic trucks and supply LNG through road to the final users. This will help smaller customers a great deal. Every day three to four trucks are loaded and despatched on an experimental basis. If the need arises, it will be increased further in future. The company had done this experiment in 2009-10 in Gujarat and Maharashtra States by loading 542 trucks. Compared to other natural gas, LNG is safer to use and can be transported through road. The company has understanding with four companies for transportation of LNG through road. In fact, the trucks can even be customised according to specific requirements of the customers. The distance the containers serve transporting LNG is upwards of 500 kilometres. Each truck can carry upto 15 tonnes of LNG. Petronet LNG supplies LNG through road to customers like Bharat Petroleum Corporation and Indian Oil Corporation. Transportation cost is insignificant compared to overall price of the LNG transported. Some other customers have also expressed keen interest in having LNG transported to their places through cryogenic trucks to fuel captive generators.
LNG can be used in buses and autos
Petronet LNG wants to tap the opportunity in the transport sector by selling LNG as auto fuel. At present, the company is selling LNG to power plants, fertiliser factories and CNG companies. The company is negotiating with wholesale manufacturers like Tata group and Ashok Leyland to manufacture buses that run on LNG. In Delhi, many cars and buses are running on CNG (compressed natural gas). This was done after the Supreme Court instructed the Delhi administration to introduce CNG in vehicles in order to reduce acute pollution in Delhi. But LNG is much safer for use in vehicles compared to CNG. In Delhi, Indraprastha Gas Company supplies CNG to vehicles. Petronet LNG has spoken to State Transport Corporations in Kerala and Maharashtra to try LNG in some of their buses before switching over completely. USA and China are running buses on LNG in their countries. In fact, LNG can even cool the engine, thereby reducing load on air conditioners. Cost wise, LNG can compete with LPG and diesel that are used as fuel in vehicles at present in India. LNG can give more mileage for vehicles but the difference is only marginal. LNG usage reduces deadweight of the vehicles as it requires only lighter tanker, thereby increasing the payload of the vehicles.
LNG finds use in trains, ships and airplanes
In fact, Petronet LNG has even suggested Railways to use LNG as a fuel. It has further suggested that LNG can be used as a fuel in ships in coastal shipping. Reports from China reveal that Hainan province in China has entered into an agreement with Kunlun Energy Company Ltd, a PetroChina company to use LNG-fuelled buses on a large scale. As long back as 2003, there were 1000 buses operating on LNG fuel in USA. Internationally, aviation sector is also researching the possibility of using LNG in airplanes as fuel.
Petronet LNG has a bright future due to increasing demand for imported LNG in India.
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