Jeff Daniels looks at one of the most important energy suppliers in the Indian sub-continent playing a role in India’s drive towards modernisation.
India’s insatiable appetite for energy is no secret. More industrial activity and greater affluence have increased demand for just about every single resource imaginable. And although India does have oil and gas deposits, the demand is increasing at a rate which cannot be fulfilled by domestic production.
As far back as 2002, the supply of natural gas was 72 million standard cubic metres per day (MSCMD) and demand had already hit 151 million MSCMD. By 2012 demand is expected to have doubled while the supply will remain constant, leaving an even larger gap between demand and supply.
At the forefront of India's drive to ensure energy security is Petronet LNG. Formed as a joint venture by the government of India to import liquid natural gas and set up LNG terminals in the country, it comprises leading names in India's oil and gas industry: GAIL, Oil & Natural Gas Corporation, Indian Oil Corporation and Bharat Petroleum Corporation.
In addition, Petronet has a strategic partner in GDF Suez, said to be the largest importer of LNG in Europe for the past 30 years, which holds 10 per cent equity in the company. GDF Suez is recognised as a world leader and has expertise in every aspect of the gas supply chain. It has developed technology and safe working practices in liquefying natural gas production as well as its supply, transmission, storage and distribution.
Natural gas can be transported through pipelines but is extremely bulky. For example, a high-pressure gas pipeline can transport only about one-fifth of the energy transported through an oil pipeline. The concept of liquefied natural gas is a response to the inefficiency of natural gas pipelines and the technical and economic problems of running pipelines over long distances.
When natural gas is cooled to minus 160.5°C, it becomes liquid and more compact, occupying just 1/600th of the gaseous volume. This is because most of the heavier hydrocarbons are removed during liquefaction. The cargo that is transported in bulk by sea is predominantly methane—a colourless, odourless, transparent liquid which is non-toxic, non-corrosive and less dense than water. However, it is highly volatile and requires specialist handling.
Being cheaper than LPG, LNG can be used as piped gas for commercial or domestic applications. In energy generation, it is used as fuel for base load and combined cycle/co-generation power plants. It also functions well as an automotive fuel, being 30 to 40 per cent more efficient and much cleaner than traditional fossil fuels. For the petrochemical industry, it is a source of several vital products such as methanol.
Petronet’s activities are centred around two LNG plants. The first and most developed is at Dahej, some 300 kilometres north of Mumbai. It represents south-east Asia's first LNG receiving and re-gasification terminal and has an original nameplate capacity of five million metric tonnes per annum (MMTPA). The infrastructure was developed in record time and at a benchmark cost. Since then, the capacity of the terminal has been expanded to 10 MMTPA with the construction of two additional LNG storage tanks and other vaporisation facilities. This terminal alone is meeting around 20 per cent of India’s total gas demand.
To ensure continuity of supply, Petronet has initiated the process of building a second LNG jetty at Dahej. Not only is this required for risk mitigation but also to berth the higher capacity Q-Max and Q-Flex LNG vessels. On the supply side, Petronet has long term contracts with Ras Laffan in Qatar for 7.5 MMTPA of LNG on a long term basis and has secured three tankers chartered from a consortium led by Mitsui OSK Lines.
All of this activity is in the north of India where most of the industry is located, but Petronet has already commenced construction of an LNG receiving, storage and re-gasification terminal at Kochi, on the south-western coast, to help satisfy the demand for natural gas from power, fertiliser and petrochemical industries in the southern states.
The terminal will have a capacity of 2.5 MMTPA expandable to five MMTPA depending on LNG supplies and market conditions. Construction is progressing as per schedule and the mechanical completion of the complete facility is expected by spring 2012. To feed the new Kochi plant, Petronet has a long term agreement with Exxon Mobil for the supply of approximately 1.5 MMTPA of LNG from the Gorgon LNG Project in Australia.
In the middle of 2010, Petronet gained a new CEO. Under Dr AK Balyan, it is likely that the company will take a somewhat different direction in future years. It’s already been determined that if the supply is increased, so too will demand grow; as such, Balyan aims to double volume in the next five to six years.
At the same time, the company is looking at taking on the marketing role in areas where there are no pipelines. The idea is to create small hubs with appropriate storage capacity, which can be supplied by tankers. Already they are supplying LNG up to 500 kilometres distant from Dahej to different industrial areas.
LNG can also be used directly in automobiles and other industrial uses. Since LNG is not stored under very high pressure, unlike CNG (compressed natural gas), it is safer to use and requires low levels of investment for drivers, who also benefit from being able to carry much larger quantities of gas, which means less frequent refuelling.
Petronet has also talked about entering into power generation. Being an LNG importer, Petronet wouldn’t have to pay any transportation charges or VAT, unlike other players, for the gas used in generating power. At Dahej, 50 acres of land near the terminal have been acquired and a detailed feasibility study is underway.
The plans on the drawing board are for 1,200 megawatt capacity brought on stream in phases, with a total capital expenditure of around Rs 4,000 crore. The entire capacity could be delivered within 36 months and when fully commissioned, it would consume over 1.2 million tonnes of LNG annually.
