In recent years, the international energy industry seems to have awoken to the enormous potential of powerstarved India to consume natural gas.
Key to the surge in gas-driven projects is the country's ninth 5-year plan (1997-2002), which calls for the construction of several gas-fired power plants. In many cases, plans call for importing the needed natural gas feed in liquefied form.
In the short term, at least, gas imports are a necessity for India. Its exploration and production sector does not have the funds necessary to keep up with rapidly growing demand, and changes in the government's policies are only now beginning to open up India's largely nationalized oil industry to outside investors.
The country finalized its New Exploration Licensing Policy (NELP) earlier this year, but the first NELP bidding round did not draw the hoped-for attention from multinational oil companies (OGJ, Aug. 23, 1999, Newsletter).
Western India's Maharashtra state is a prime target for LNG imports, as the state government is sponsoring six power projects with fast-track development schemes. BSES (formerly Bombay Suburban Electric Supply) also plans to build a 495-Mw, natural gas-fired power plant at Palghar, Maharashtra.
"Our studies reveal that Maharashtra state has a market potential of 4 million tonnes/year, while Karnataka and Goa between them could take another 2.5 million tonnes/year," said Sanjay Bhatnagar, CEO of Enron India. "Metgas (Metropolis Gas Co. Pte. Ltd., a wholly owned subsidiary of Enron Corp. headquartered in Mumbai), which was specifically set up to market LNG in India, will not lack for customers."
While Enron is leading the charge of multinationals keen to stake a claim in India's burgeoning gas supply industry, Qatar is well on its way toward becoming India's primary LNG supply.
Of the six LNG supply deals already negotiated by consumers and distributors in India, Qatar's Ras Laffan Liquefied Natural Gas Co. (Rasgas) has secured two, which, together, will account for about 56% of India's total LNG imports in 2003 (see table, p. 00). The firm views India as a strategic market for LNG.
Rasgas is a joint venture of Qatar General Petroleum Corp. and US multinational Mobil Corp. The JV started up the first train of its gas liquefaction plant at Ras Laffan in March 1999, when it began selling 4.8 million tonnes/year of LNG to Korea Gas Corp. under a 25-year contract (see photo, p. 00). A second train is due to start up in mid-2000.
The plant processes gas from Qatar's supergiant North Field.
According to official figures, Qatar has natural gas reserves of 380 tcf. Its goal is to be "the world's premier LNG supplier," said Qatari Energy and Industry Minister Abdullah Bin Hamad al Attiyah in early August.
Al Attiyah says that, including its agreements for exports to India, Qatar has confirmed long-term LNG sales contracts for more than 18 million tonnes/year, placing it among the top three LNG exporters worldwide, alongside Indonesia and Algeria.
Dabhol Power
Canny US energy multinational Enron managed to get a foothold in India by participating in the construction of a 2,140-Mw power plant at Dabhol in southern Maharashtra (see story, p. 00).
The Dabhol project is divided into two phases. The first phase involves a 740-Mw, variable-fuel plant; this section started up in June and is being fired on naphtha (OGJ, June 14, 1999, p. 34). The second phase will involve
1,400-Mw of capacity, fired on natural gas imported as LNG. When the second phase is commissioned in late 2001, the entire plant will use natural gas as fuel.
Dabhol Power's first phase is owned by: Enron, 500/0; the Maharashtra State Electricity Board, 300/o; and Bechtel Enterprises Holdings Inc. and GE Capital Structured Finance Group, 10% each. Phase 2 will be owned by: Enron, 800/o; and Bechtel and GE, 10% each.
The two phases will require about 2.3 million tonnes/year of LNG feed. The firms have already secured most of the necessary supplies for the megaproject.
Dabhol Power has agreed to import 1.8 million tonnes/year of LNG from Oman LNG LLC, a consortium led by the Omani government and Royal Dutch/Shell (OGJ, Apr. 6, 1998, p. 29). The group will purchase another 480,000 tonnes/year of LNG from Abu Dhabi Gas Liquefaction Co. (Adgas) under a 20-year contract. Deliveries under both contracts are slated to begin in the last quarter of 2001.
Aside from the generation unit, the Dabhol Power partners plan to build India's first LNG receiving terminal and regasification complex and to construct a natural gas pipeline network in western India. And Enron has also secured a $165 million loan for India's first LNG carrier.
The 10-year loan, struck at 325 basis points over the London Inter-Bank Offer Rate (LIBOR), is India's first financing arrangement for an LNG carrier.
"The pricing sets a benchmark for future LNG carrier financing," said Gaurav Seth, an assistant director of ANZ Investment Bank, underwriter for the loan. "Loans contracted at 300 basis points over LIBOR are considered excellent, even in good days. Placing Indian paper after the Asian monetary crisis at such a fine rate is a coup of sorts."
A special-purpose LNG transportation company has been set up, comprising Japan's Mitsui OSK, Enron, and the government-owned Shipping Corporation of India (SCI). The group will own and operate a 135,000 cu m vessel to transport LNG from Oman and Abu Dhabi to an import terminal near the Dabhol plant. The time charter will be a 20-year agreement dedicated to the captive supply of LNG to the plant.
The ship-to be owned 60% by Mitsui OSK, 20% by Enron, and 20% by SCI-is to be built by Mitsubishi Heavy Industries shipyard in Japan. It will be called LNG Lakshmi and is expected to begin LNG deliveries by the last quarter of 2001.
Metgas imports
Enron has sprung Further ahead in the LNG race by signing a letter of intent with Malaysia LNG Tiga Sdn. Bhd. (MLNG Tiga) for the supply of 2.6 million tonnes/year of LNG to a planned Enron import terminal near Dabhol.
The agreement was signed on July 13 by Enron's Indian subsidiary Met-gas and MLNG Tiga, in which Malaysian state oil firm Petronas has a 60% stake. Deliveries will commence in mid-2002 and will continue for 20 years.
Metgas plans to sell any gas not consumed by the Dabhol power plant to leading power, fertilizer, and industrial concerns on India's western coast.
"With the Petronas deal, we have been able to tie up 4.7 million tonnes/year altogether for our terminal, which will have a total capacity of 5 million tonnes/year," said Enron's Bhatnagar.
The LNG will be delivered to Metgas in tankers from a loading terminal at Bintulu, Sarawak, where MLNG Tiga is building a liquefaction unit. Scheduled for completion by 2002, the Bintulu plant will comprise two trains, each with capacity of about 3.4 million tonnes / year.
Located next to two existing LNG plants with a combined capacity of 16 million tonnes/year, Malaysia third plant will increase the country's LNG production capacity by nearly 500/o.
The letter of intent with Metgas was the second to be signed by MLNG Tiga. The first was with Japan Petroleum Exploration Co. Ltd. for up to 500,000 tonnes/year for 20 years. The Metgas deal was Malaysia's first LNG supply deal with an Indian firm, however, according to MLNG Tiga Chairman Tan Sri Mohamad Hassan.
Petronet LNC imports
While Metgas is busy carving out a large market, government-owned Petronet India Ltd., a company formed to oversee the laying and maintenance of pipelines in the country, has been firming up its own share of LNG supply.
Petronet is a joint venture holding firm formed by four of India's largest public-sector companies: Gas Authority Of India Ltd. (GAIL), Oil & Natural
Gas Corp. (ONGC), Indian Oil Corp., and Bharat Petroleum Corp. In early August, Petronet LNG signed an agreement with Rasgas for the purchase of 7.5 million tonnes/year of LNG.
Of this quantity, 5 million tonnes/ year will be imported to Petronet's planned terminal at Dahej, Gujarat, and 2.5 million tonnes/year will be imported at Kochi (formerly Cochin), in southern India's Kerala state.
Deliveries are slated to begin in July 2003, increasing in stages to a combined 7.5 million tonnes/year in January 2005. The price of the LNG will be linked to a basket of crude oil.
Now that its LNG supplies have been secured, Petronet LNG will move ahead with the next phase of the project. This will include the construction of the import terminals, regasification units, and LNG carriers. Meanwhile, Rasgas's next move is to expand its liquefaction plant in preparation for the start of deliveries under the massive supply contract.
GAIL has already secured the rights to market the 5 million tonnes/ year of LNG from Petronet LNG's Dahej terminal and is seeking the same agreement for the Kochi terminal. "We have already made a proposal to Petronet LNG, and it is under discussion," said CR. Prasad, GAIL's chairman and managing director.
"Marketing the LNG in Kerala will be easy for us, since we already have the necessary infrastructure in place." The terminal is expected to be commissioned in 2003.
To facilitate the shipment of gas from Dahej, Petronet plans to upgrade its gas pipeline system and increase the capacity of the Hazira-BijaipurJagdishpur (HBJ) trunk line to 60 million cu in/day from 34 million cu in/day (OGJ, Aug. 24, 1998, p. 32).
"We will have to invest nearly 25 billion rupees ($578 million) for enhancing the capacity of the HBJ pipeline," said Prasad. "We have already started preparing the detailed feasibility report for the project."
GAIL has already identified LNG customers in Gujarat, including power, fertilizer, and petrochemicals plants.
Tidco project
The other major Indian LNG import project that has secured supplies from Rasgas is the Dakshin Bharat Energy Consortium (DBEC). The group comprises Unocal Bharat Ltd., CMS Energy Asia Pte. Ltd., Grasim Industries Ltd., Siemens Project Ventures GMBH, and Woodside Development Asia Pty. Ltd.
In July 1998, DBEC signed a memorandum of understanding with Rasgas in support of DBEC'S successful bid for the Tamil Nadu Industrial Development Corp. (TIDCO) tender to finance, build, own, and operate a power plant and an LNG receiving, regasification, and storage facility at Ennore, Tamil Nadu. This summer, Rasgas and DBEC signed an agreement detailing the terms of the earlier arrangement.
The formal agreement involves the supply of 2.6 million tonnes/year of LNG for 20 years, with initial deliveries targeted to begin in July 2003. It will be followed by a formal sales-and-purchase agreement, which is expected to be signed by the end of 1999.
Trombay power plant
Another major project GAIL is associated with is the planned LNG import project at Trombay, near Mumbai.
The project is to be set up in two phases, each of which will involve importing 3 million tonnes/year of LNG, regasifying it, and supplying the natural gas to consumers by pipeline. The first phase will cost $400 million, with deliveries slated to begin in 2003.
The two main promoters of the project-India's Tata Electric Cos. and France's TotalFina SA-have negotiated to bring GAIL in as a third equity partner. GAIL will pick up a 33.3% equity stake in the 25.3 billion rupee project. The GAIL stake is to be subtracted equally from the 50% interests of the two existing partners, giving each of the three partners a 33.3% stake in the project, to be named India Natural Gas Co. Ltd. (Indigas).
At a Gail board meeting in New Delhi in September, the directors cleared the proposal, under which GAIL will provide an initial equity investment of 2.83 billion rupees, out of a total equity base of 8.5 billion rupees.
The synergy of the Trombay project lies in the captive use of a major portion of the gas by Tata's nearby 1,350 Mw power plant. The surplus gas will be marketed by GAIL to industrial customers in the Mumbai area.
"We are negotiating with all potential gas users in the area," said Prasad. "GAIL will play a dominant role in the development and growth of the Indian gas market and in augmenting gas supplies."
Gas supplies for the Trombay project will be provided by TotalFina, which has interests in LNG plants in Qatar, Indonesia, Abu Dhabi, Oman, and Yemen.
Shell's LNG strategy
Royal Dutch/Shell-the world's largest LNG supplier-is keeping a close eye on India's developing gas market. Shell has been approached by the joint ventures BG PLC-Sea King Infrastructure Ltd. and Unocal-NATELCO to form long-term partnerships in LNG projects in, respectively, Pipavav and Maroli, both in Gujarat. This was revealed in Mumbai recently by Martin Foley, vice-president of gas and power for Shell India.
"We are looking at both the projects with great interest," said Foley. "Our role in them could amount to long-term supply of LNG, and more. It is also possible that the deals may involve Shell taking equity stakes in these projects, although nothing has been finalized as yet."
BG and Sea King hold equal equity stakes in the 19.4 billion rupee ($450 million), 5.3 million tonne/year Pipavav project. Each partner, however, is expected to relinquish a 13% interest to National Thermal Power Corp. in exchange for $21 million.
If Shell were to express interest in taking an equity stake in the Pipavav project in exchange for a guaranteed LNG supply, the project's promoters may well part with another chunk of equity.
"We have also been approached by Unocal for a similar partnership in the 2 million tonne/year Maroli LNG project," said Foley. "Both are interesting projects involving the development of general cargo ports along with LNG facilities."
Meanwhile, Shell has bid for an LNG project at Hazira, Gujarat. The state government had earlier short-listed three groups for the project: Shell with Essar Oil Ltd., Elf with Reliance Petroleum Ltd., and Mobil. Mobil subsequently withdrew from the running.
Industry sources indicate that the Shell-Essar bid is more likely to be selected than the Elf-Reliance bid because its terms are better. The sole stumbling block could be the current financial mess at Essar.
"However, Essar has no equity interest in the Hazira project," said Foley. "The Foreign Investment Promotion Board has granted us the right to hold 100% of the equity.
"We have very definite intentions of becoming a long-term player in the Indian LNG sector. We have already started supplying LNG to India from Oman LNG, in which we hold a 30% equity stake. India is a very important market for us."
India's gas supply
While gas import projects are garnering the lion's share of the attention, India is not without promising natural gas resources.
Unocal was asked by the Indian government to study prospects for oil and gas exploration in the tiny northeastern state of Tripura. The firm concluded that, while the potential for oil in the region is extremely low, the area is highly prospective for gas.
Unocal has argued that gas fields discovered in neighboring Bangladesh could extend into Tripura, where ONGC has launched a project to triple gas production from the current capacity of 1 million cu in/day.
Cairn Energy PLC of the UK has made a proposal to ONGC that the gas found in Tripura be marketed jointly. Thus far, India's gas production has been marketed only by GAIL.
Cairn Energy is operator of the Ravva offshore oil and gas field in the Krishna-Godavari basin off eastern India. The firm is planning to extend its Indian exploration activities to the south of Ravva, to the Gulf of Cainbay off Gujarat, and to Rajasthan state; it also has some concessions in Bangladesh.
Since it would be capital-intensive to transport Tripura gas to other parts of India through Indian territory, circuinventing Bangladesh, both Cairn and Unocal plan to take any gas they find in Tripura to Bangladesh and to draw the same quantity of Bangladeshi gas across that country's western border with India, essentially creating a gas swap between the countries.
Bangladesh, however, has not reacted very positively to either selling its surplus gas to India or swapping it with Tripura gas. But both multinationals believe that it is only a matter of time before that country sees the logic of the arrangement.
Unocal was expected to submit its final report to the Indian authorities by July 23; the disposition of that report has not yet been made public.
Iran's gas proposal
Not to be outdone by Oman and Qatar, Iran has offered to export its surplus natural gas to India in an effort to build long-term bilateral trade relations.
Iran envisions delivering 56 million cu in/day of gas to the western shore of India through a 2,000 km pipeline. The gas would be enough to feed 11,000 Mw of power generation capacity. It would be transported either by water-borne LNG shipments or via a proposed subsea pipeline from Iran and India's Gujarat coast.
It is not the first time the scheme has been suggested. The idea was brought up in early 1997 but came to nothing when Pakistan blocked a survey that was to be performed as part of a feasibility study (OGJ, Feb. 24, 1997, Newsletter; June 15, 1998, Newsletter).
Mehdi Hashemi, Iran's deputy minister for gas, led an Iranian delegation to India in mid-July. He made the latest offer while speaking in Ahinedabad with the Gujarat branch of the Confederation of Indian Industry.
"Our government has been in talks with the Indian government for the last 7 years, but these talks did not fructify earlier due to politico-economic reasons," Hashemi said. "But Iran considers India to be one of its biggest and nearest markets. It would be in India's interests to buy gas from one source which is near and never-ending rather than from several sources in far-off countries. In return, India could supply several commodities which Iran has to import."
Iran claims to have 16% of the world's gas reserves, enough to last for 500 years at the present rate of exploitation. Even if India buys 30 million cu rn/day of gas, that would constitute just lO% of Iran's current production (OGJ, Sept. 13, 1999, p. 27).
Hashemi said that, while Iran would have no problem supplying gas to India either through a pipeline or by LNG carrier, it would prefer the former.
"A pipeline would be safer, and probably 10-20% cheaper than a ship," he said. "We have been in the oil and gas business for the last 50 years and possess the technology to lay a subsea pipeline up to 1,000 m deep in the sea.
Given the adversarial relationship between India and Pakistan, Tehran is now looking at the possibilities of building the pipelines in the deep sea, avoiding Pakistani waters. Senior officials of National Iranian Oil Co. and National Iranian Gas Co. were in India last week to discuss the subject with GAIL. GAIL officials said that what had reactivated Iranian interest in the pipeline was the fact that it has now become possible, technologically, to lay pipelines in deep water. New technology has enabled such work to be done in water more than 2,000 in deep (OGJ, Sept. 6, 1999, p. 52), but the Iran-India line would have to be laid in about 3,000 in of water.
Delivery gas via pipeline would cost much less than waterborne shipments of LNG, but the construction of a deep-sea pipeline could take much longer than building an LNG plant and shipping and receiving facilities. If the gas were shipped in liquefied form, a terminal with a capacity to handle 5 million tonnes/year would have to be built on India's western coast to handle the Iranian imports.
Future prospects
It is worth noting that things have not always gone smoothly with proposed natural gas deals involving India. Several projects involving outlays of millions of dollars were proposed in the wake of the introduction of liberal economic policies in India in the early 1990s. Many have yet to take off.
A project similar to the Iran-India subsea gas pipeline that has been talked about for several years but is yet to see the light of day is a $5 billion scheme to lay a pipeline from Oman through the Persian Gulf to India's western coast.
The project seems to be as good as abandoned. The official position is that a joint working group comprising officials from GAIL and Oman Oil Co. is still looking into the matter, but sources in GAIL say the committee has not met for more than 18 months.
Technical difficulties involved with laying pipelines in deep water and lack of sufficient gas reserves in Oman to meet India's long-term requirements have contrived to back-burner the project.
The impact of the failure of the Oman-India pipeline project to move forward, and only lukewarm prospects for the proposed pipeline from Iran, have contributed to India's sharp focus on gas transportation via LNG carriers. Shipments by this method can always take a circuitous route in times of conflict and therefore are more reliable than pipeline shipments through the territory of an adversary.
