The Hindu : Imperatives of efficient gas use

Online edition of India's National Newspaper
Monday, Feb 16, 2004

Business

Business

Imperatives of efficient gas use

A regulatory framework needs to be created urgently to meet the needs of all stakeholders in the crucial segment of the energy economy, says Sushma Ramachandran.

Jetty at Dahej

EVEN AS over a decade has passed without any progress on natural gas pipelines from either Oman or Iran, the process of importing the gas in a liquid form through tankers has finally begun with the commissioning of the Dahej terminal. The pipeline route may have some advantages, but political issues have always taken precedence over economic as any pipeline laid overland has to pass through Pakistan. Despite assurances from that country that fears on security are unfounded as the pipeline would bring gas to Pakistan as well, the delicate political relationship continues to bog down the entire project.

In a bid to provide an alternative option till the pipeline controversy is resolved, the setting up of specialised port terminals for handling liquefied natural gas (LNG) was taken up on a priority basis since the country could not have waited to increase supply of energy sources. The step has to be viewed in the backdrop of the fact that domestic crude oil production has been stagnating and imports have reached as much as 70 per cent of total demand. Besides, natural gas is increasingly being viewed as the fuel of the future being less polluting, more efficient and cheaper in the long run. The Dahej terminal is thus the first of several such specialised port facilities proposed to be set up to utilise natural gas from West Asian countries. In the case of Dahej, the public sector has taken the lead with Petronet LNG Limited, a company formed with equity participation of leading state owned oil companies, but the foreign oil major, Shell is also in the process of setting up a similar terminal at Hazira.

Benefits to industry

Petronet LNG has tied up imports of LNG from Qatar, which has huge natural gas reserves. A 25 year agreement has been reached with Rasgas company of Qatar to import five million tonnes annually of LNG at prices fixed at roughly equivalent to $20 a barrel of crude oil for the first five years. Simultaneously, PLL has to make arrangements for supply of LNG through specialised cryogenic vessels manufactured in South Korea. The natural gas is thus converted into liquid form in Qatar and shipped in these specialised vessels to Dahej where the liquid gas is converted once again to the gaseous state — `regasified'— at the terminal. It is then ready to move through a pipeline to Vijaipur where it will be supplied through the HBJ pipeline to various consumers including fertilizer and power plants along its route.

The investment in the entire supply chain is estimated at about Rs. 7,500 crores. This includes about Rs. 2,600 crores on the Dahej terminal and Rs. 1,600 crores for two LNG tankers as well as related pipeline infrastructure. According to Petronet, the inefficiency of natural gas pipelines and technical and economic problems of running pipelines over long distances have contributed to the creation of international LNG business. LNG projects, however, are generally built up in the form of "LNG chains'' due to their huge cost and complexity.

LNG supply chain

Having created this LNG supply chain, Petronet now has to market the gas through the Gas Authority of India Limited (GAIL), the Indian Oil Corporation (IOC) and the Bharat Petroleum Corporation Limited (BPCL) which are along with the Oil and Natural Gas Corporation (ONGC) the promoters of PLL with a 50 per cent equity stake. Though Petronet claimed at the recent dedication of the project, that sales of the entire quantity have been tied up by these companies to fertilizer and power companies, the fertilizer industry insists a final decision has yet to be taken on this issue. Fertilizer companies recognise that the gas from Dahej will be the cheaper option to naphtha being used now, but are clearly awaiting a final nod from the government. Consumers of Dahej gas will have to pay about $4.3 per million BTU (British thermal units) as against about $7-8 per million BTU for naphtha at current international prices.

Out of the five million tonnes to be imported annually, one million tonnes has been earmarked for consumers in Gujarat which has already cut sales tax on LNG from 20 to 12.5 per cent in a bid to reduce the price for consumers.

This will also meet the needs of industries already using naphtha or fuel oil as a feedstock and for whom natural gas will come as a cheaper option.

Ticklish pricing issue

LNG tanks at Dahej

The Gujarat Government has also said the LNG will be used to supply piped gas to households throughout the state but it has to be seen how pricing is worked out as LPG supplied by oil refineries is much cheaper owing to substantial subsidy being given by the Central Government.

In this context, it must be pointed out that prices of natural gas produced by the ONGC and Oil India Limited from nominated oilfields are still being controlled by the government at far lower levels than LNG or gas produced by joint ventures. There are a host of players in the natural gas sector, ranging from public sector producers, joint ventures, importers, shipping companies and pipeline agencies as well complex and critical issues such as pricing for various types of gas that need to be resolved.

In this scenario, it is clear that a regulatory framework needs to be created urgently to meet the needs of all stakeholders in the crucial segment of the energy economy.

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