By Ajay Modi
As domestic gas output continues to dip, Petronet LNG, the country's biggest importer of the fuel, is set to commission its second and the country's third LNG import terminal, at Kochi. It has also been approached by the government of Kerala to set up a gas-based power plant at Kochi, under a joint venture. A K Balyan, managing director and chief executive officer, talks to Ajay Modi on the near-term plans and the market outlook. Edited excerpts:
When will Petronet commence operations at Kochi terminal? Has gas import been tied up?
We have a meeting later this month to decide on a possible date. We hope to commission it during January-February next year. We will be getting 1.5 million tonnes gas from the Gorgon fields in Australia for 20 years, beginning January 2015, at Kochi. Meanwhile, we will operate on a short-term and spot basis. More gas tie-ups are being explored.
What capacity will initially be operational at Kochi?
I think it will be in the range of 750,000 to a million tonnes (mt) till the end of the next calendar year. By 2013-end, the GAIL pipeline connecting Kochi with Mangalore via Tamil Nadu is expected to be operational. This will enhance our capacity utilisation substantially, as Mangalore alone has a demand of 2.5 mt. We foresee sending out close to 4.5 mt LNG once the pipeline is commissioned. It was to come along with this terminal but got delayed.
Who will be the main consumers for the Kochi terminal?
A number of consumers have been finalised. These include the FACT fertiliser plant at Travancore, BPCL's Kochi refinery, a glass unit and power unit.
What happened to your talks with NTPC for gas supply?
Nothing substantial at the moment. They are running the plant on naphtha. Changing over to gas would have made better economic sense. I am not sure why they have not evinced serious interest.
What is the status of the power plant proposal at Kochi?
We have been approached by the Kerala government, suggesting a 50:50 joint venture for a 1,200-Mw project. We have responded positively but further progress will depend on two issues. First, the state government should give us land contiguous to our terminal for better integration. Second, it guarantees a minimum 70 per cent power offtake. They are aware that power generated on imported gas will be costlier but they are agreeable.
We have proposed a memorandum of understanding on the entire power business model. The state government has done a lot of analysis on the project. They have a few power projects on naphtha that are costlier. The state ends up buying the deficit from outside at about Rs 10 a unit. The project can have an upside if international prices soften or we are able to get some domestic allocation. Gas produced through imported LNG might cost about Rs 6.50 a unit. If the power produced costs less than Rs 7 a unit, the state government will be very happy to buy.
Why there is no similar interest in your power plans for Dahej from the Gujarat government?
We have completed a DFR (Design for Reliability) for the Dahej project. Unless they commit 70 per cent purchase, we will not be able to work on the project. Gujarat today is power surplus, against a deficit in Kerala. So, the Gujarat project will have to wait.
What progress has been made in the new terminal plan at Gangavaram (port, in Andhra)?
We have applied for environmental clearance and other statutory approvals are in progress for the project. A term sheet has been signed and the project is on track. HPCL (Hindustan Petroleum) has shown interest in taking equity. We have not finalised it. However, we have signed an agreement to supply gas to HPCL's Vizag refinery.
How is the international gas market behaving? Are you looking for more import contracts?
Availability is improving as more projects are coming up. Therefore, prices are also softening. There is no import by the US, while the growth in Europe is also low. New projects will look to sell more in Asia and prices should become more realistic. Negotiations are on for short-term and long-term import contracts.
There is a demand from domestic producers such as Reliance Industries to revise the gas price from $4.2 a unit to around $13. If this happens, what impact will it have on Petronet?
A uniform price for gas, irrespective of the source, is welcome. When prices will be same for both imported LNG and domestic gas, I see preference growing for LNG that can offer an assured supply, compared to the uncertainties in domestic supply.