LNG Liquified Natural Gas For Cars in Pakistan

LNG Liquified Natural Gas For Cars in Pakistan

How LNG suppliers are coping with increasing demand and prices?
In late 2003, a multinational oil major offered to sell an Indian public sector power company liquefied natural gas (LNG) at $4.5-5 per million British thermal unit (mmbtu).

It was summarily turned down as an “overpriced” and “unviable” offer. Less than three years later, potential buyers from India — including those who passed on the $4.5 offer — are scrambling to buy LNG even at $7 or $8 per million British thermal units (mmbtu). It’s a steal at that price: countries like Japan and South Korea are buying LNG at $11 and $20.

It’s taken just three years to turn the market dynamics of the LNG industry on its head. With demand in India and China growing at 6-7 per cent a year, suddenly LNG is a suppliers’ market. But it’s no party for suppliers, either. Between buying gas at respectable prices from producers across the world and India, to selling them to customers like power plants and fertiliser companies at a profit-generating rate, the suppliers have their work cut out.

“India missed the bus in early 2002-03 when supplies were available but Indian consumers couldn’t understand the pulse of the market and refused to take a call,” declares Nitin Shukla, CEO, Shell Hazira LNG, the Indian subsidiary of Shell Gas and Power. What are Indian LNG suppliers doing to ensure events remain in their favour?

First things first: this isn’t a temporary situation. Natural gas is a clean fuel and given the rising costs of emission control equipment, Indian power generators are increasingly switching from coal-fired to gas-fired plants. As are auto makers.

Two months ago, India’s largest car maker, Maruti Suzuki, launched a car with a factory-fitted LPG tank, the Wagon R Duo. Already, commercial passenger vehicles in New Delhi and Mumbai have switched to compressed natural gas. So demand for natural gas isn’t going to taper off anytime soon.

Obviously, the demand is fuelling increases in the price of LNG. But there’s another factor at work as well: the chronic gas shortages and the uncertainties related to international pipeline gas projects: both the Iran-Pakistan-India and the Myanmar-Bangladesh-India pipelines are still in the air.

A recent KPMG report on India’s energy sector points out that in the long term, among the most lucrative areas for investment in the natural gas sector could be LNG facilities in areas where pipeline gas is not expected in the near future.

Some oil marketing companies have already taken that to heart. While ONGC is planning an LNG receiving terminal (where the gas will be imported and stored before being shipped out to customers) at its Mangalore complex, Indian Oil Corp has also announced its decision to set up an LNG terminal.

At Dabhol, NTPC and Gail, which own the power plant and the attached LNG facilities, are planning to sell the plant to an LNG operator such as Petronet LNG.

In turn, Petronet is considering doubling the plant’s capacity from 5.1 mmtpa to 10 mmtpa, once it gets control of the facilities. It is also in talks with Qatar’s Ras Gas to trade a stake in the Dabhol LNG facility in exchange for a long-term supply assurance.

The first task to cope with rising demand is to ensure supply. Globally, additional liquefaction capacity of 251 million tonnes per annum, or mmtpa (natural gas is measured in mmbtu when gaseous, and in mmtpa when in liquid form). That’s in addition to the existing 157 mmtpa, and will be in place by 2010. Of this, 145 mmtpa is being set up east of the Suez, in West Asia, South East Asia, Australia and Brunei.

This will facilitate the creation of 90 million tonnes in Qatar, Iran and Yemen, and 57 mmtpa in the Pacific region. Africa (mainly Nigeria, Algeria, Angola and Egypt) could also become a major source of LNG, adding another 64 mmtpa by 2010-14.

In India, too, while the facilities at Dahej are being expanded, new capacities are being set up at Kochi, Dabhol, Ennore and Mangalore (see chart). While Dabhol will be operational by 2007 and the Kochi terminal by 2008 or early 2009, the Ennore and Mangalore terminals are in the initial stages.

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