LNG regasification projects attracting investors again

India’s natural gas need is growing day by day while domestic supply is moving in the opposite direction. With production at KG basin going down unabated, Asia’s third largest economy is left with no option but to look out for some other sources of natural gas abroad. This has necessitated increased investment in regasification facilities.

Investment in LNG regasification terminals is once again getting crowded and nine projects (including an expansion project by Petronet LNG at Dahej) involving Rs 40, 000 crore investment are already in pipeline. If all the projects materialize India’s regasification capacity will go up by massive 40 MTPA. India presently has 18.6 MTPA regasification capacity.

During late 1990s many Indian promoters had shown keen interest in setting up LNG regasification terminal along the Indian coastal line envisaging an investment of around Rs 20,000 crore. As natural gas was considered environment friendly fuel vis-à-vis coal, Indian entrepreneurs felt that the demand for natural gas would grow astronomically in the coming years. However, lack of clarity on policy issue (then government had promised to come out with LNG policy which never happened) forced many foreign partners to back out of the project. For example, Indian Oil Corporation had plans to set up 2.5 MTPA at Krishnapatnam in Andhra Pradesh. However, the project was deferred due to the exit of foreign partner BP-Amoco. Similarly Reliance group ad teamed up with British Petroleum and National Iranian Oil Co. (NIOC) to establish an 8 million tonne LNG terminal at Jamnagar port in Gujarat. However, the project was shelved due to changed economic environment. 2.5 MTPA LNG terminal planned at Pipavav in 1998 had to be shelved as the state government decided to charge 23% tax on LNG thus making the project unviable. In fact, the project promoter, Gujarat Pipavav LNG Co. Ltd, had entered into Yemen LNG for supply of LNG.

Unlike in 2000 when many private parties had shown interest including Tata and Reliance this time investment is mostly by central and state PSUs. Even Petronet LNG (India’s largest gas importer) is owned by Central oil PSUs. HPCL’s Chhara LNG terminal is a 50:50 JV with private developer Shapoorji Pallonji.

It is not just the widening of the gap of domestic production and consumption that is making the regasification an attractive proposal. With large scale shale gas discovery and production in USA, it has virtually pulled out from the international natural gas market thereby helping the gas price to cool down. Today Qatar is more than willing to meet major portion of India’s natural gas needs. This was not the case a few years ago when sellers were dictating terms in the market.

Seriousness of the investors in regasification terminal can be gauged from the fact that most of the players have tied up or are in the process of tying up long term supply of natural gas. For example, Gujarat State Petroleum Corporation (GSPC) has inked a long term gas supply agreement with British Gas for supply of 1.25 MTPA of Liquified Natural Gas initially, which will be raised to 2.5 mtpa after two years. Petronet LNG has entered into long term natural gas supply agreement with USA’s United LNG for import of 4 MTPA LNG.

However, there are some projects which have not moved beyond initial announcement stage. For example, Sterlite Industries in 2009 had announced its plans to set up LNG terminal at Chinchpada, Silvassa in Dadra & Nagar Haveli on BOOT basis. But the project has not beyond inviting expression of interest. Similarly, Oil India too had announced its plan to set up small scale LNG terminal in Upper Assam in 2009 to commercially use flared up gas in remote Assam. After issuing EoI in 2009, the project has failed to make much headway. Despite these black spots, possibility of most of the projects seeing the light of the day is bright.