The 60 metric million standard cubic meter per day (mmscmd) of gas, which Reliance Industries Ltd (RIL) is pumping currently out of KG D6 has had a curious effect on the demand for liquefied natural gas (LNG) in the spot market in the country. The demand for LNG has suddenly dried up.
However, most experts believe this is a temporary phenomena and demand will go up as more capacity is added in the power and fertilizer sectors. Apart from the availability of KG D6 gas, the other major problem the Indian gas market is facing is adequate infrastructure.
Petronet LNG, the leading player in the LNG market has not bought any spot cargo since November 2009. The biggest consumer of LNG in the country, RIL which used to buy at least two LNG cargoes a month in the spot market has now stopped buying in the spot market. It is only importing two cargos through Shell’s Hazira terminal under long-term contract. Out of KG D6 production, RIL gets 2.34 mmscmd.
Around 1.2 metric million tonnes of gas was being imported in the country every month before KG D6 started producing about 60 mmscmd but now it has come down by half.
As the basic output from KG D6 is being utilised by power and fertilizer plants, these companies are no longer ready to shell out US $8 or more for gas in the spot market. With KG D6 gas available, they require additional gas only to improve plant load factors (PLF) in the power plants, said V Shunmugam chief economist, multi commodity exchange MCX.
But this is likely to be a temporary lull. Once more power generation capacity and additional capacities in the fertilizer sector come up, the demand for gas will go up substantially, said Ajay Arora, practice head for oil and gas at international consultancy firm Ernst and Young.
As demand picks up in the near future, there is a strong case for Petronet LNG to go full steam ahead on its plans for setting up an LNG terminal at Kochi. The response may not be as good in the case of Ratnagiri Gas and Power Pvt Ltd (RGPPL), which is also developing an LNG terminal at the site of its Dabhol power plant.
An analyst with another international consultancy firm believes that the problem has more to do with structural flaws in the Indian gas market than with demand.
He said due to the pool price mechanism for imported LNG, none of the suppliers – IOC, GAIL, BPCL can offer advantage of prevalent prices at particular point of time to their customers. This disincentivices suppliers from taking risks and maximising profits.
Inadequate infrastructure
Most of the gas imported in the country is either at Shell’s Hazira terminal or Petronet’s Dahej terminal and is transported through GAIL’s Hazira-Baroda-Jagdishpur (HBJ) pipeline. At present the pipeline is almost choked and there is hardly any room for pumping more gas through this pipeline.
In 2009-10, the gap between demand and the ability to transport the gas is expected to be around 65 mmscmd and it is expected to halve to 30 mmscmd by FY 13. But the gap between the demand and the pipeline capacity is not expected to be bridged in the medium term.
In an emailed response a Shell spokesperson said, “The recent gas discovery from the Krishna-Godavari basin has a current recoverable reserve of 10 trillion cubic feet (TCF) and 1 TCF can fuel a 1000 Mw plant for 20 years. Thus all of the new discovery can fuel 10,000 Mw and with the target for capacity addition at 75,000 Mw, i.e., 15,000 Mw per year. This current find cannot meet even a year’s capacity addition in power, leave alone entirely address other additional industry use.”
However, most experts believe this is a temporary phenomena and demand will go up as more capacity is added in the power and fertilizer sectors. Apart from the availability of KG D6 gas, the other major problem the Indian gas market is facing is adequate infrastructure.
Petronet LNG, the leading player in the LNG market has not bought any spot cargo since November 2009. The biggest consumer of LNG in the country, RIL which used to buy at least two LNG cargoes a month in the spot market has now stopped buying in the spot market. It is only importing two cargos through Shell’s Hazira terminal under long-term contract. Out of KG D6 production, RIL gets 2.34 mmscmd.
Around 1.2 metric million tonnes of gas was being imported in the country every month before KG D6 started producing about 60 mmscmd but now it has come down by half.
As the basic output from KG D6 is being utilised by power and fertilizer plants, these companies are no longer ready to shell out US $8 or more for gas in the spot market. With KG D6 gas available, they require additional gas only to improve plant load factors (PLF) in the power plants, said V Shunmugam chief economist, multi commodity exchange MCX.
But this is likely to be a temporary lull. Once more power generation capacity and additional capacities in the fertilizer sector come up, the demand for gas will go up substantially, said Ajay Arora, practice head for oil and gas at international consultancy firm Ernst and Young.
As demand picks up in the near future, there is a strong case for Petronet LNG to go full steam ahead on its plans for setting up an LNG terminal at Kochi. The response may not be as good in the case of Ratnagiri Gas and Power Pvt Ltd (RGPPL), which is also developing an LNG terminal at the site of its Dabhol power plant.
An analyst with another international consultancy firm believes that the problem has more to do with structural flaws in the Indian gas market than with demand.
He said due to the pool price mechanism for imported LNG, none of the suppliers – IOC, GAIL, BPCL can offer advantage of prevalent prices at particular point of time to their customers. This disincentivices suppliers from taking risks and maximising profits.
Inadequate infrastructure
Most of the gas imported in the country is either at Shell’s Hazira terminal or Petronet’s Dahej terminal and is transported through GAIL’s Hazira-Baroda-Jagdishpur (HBJ) pipeline. At present the pipeline is almost choked and there is hardly any room for pumping more gas through this pipeline.
In 2009-10, the gap between demand and the ability to transport the gas is expected to be around 65 mmscmd and it is expected to halve to 30 mmscmd by FY 13. But the gap between the demand and the pipeline capacity is not expected to be bridged in the medium term.
In an emailed response a Shell spokesperson said, “The recent gas discovery from the Krishna-Godavari basin has a current recoverable reserve of 10 trillion cubic feet (TCF) and 1 TCF can fuel a 1000 Mw plant for 20 years. Thus all of the new discovery can fuel 10,000 Mw and with the target for capacity addition at 75,000 Mw, i.e., 15,000 Mw per year. This current find cannot meet even a year’s capacity addition in power, leave alone entirely address other additional industry use.”
Source: energybusiness.in
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