A. PREAMBLE
India is undoubtedly
emerging as a major LNG market of the future. For the generation of electric power LNG is
by far the most favoured fuel. LNG fueled Gas Turbine yields a high thermal efficiency of
55% as against 40% with Indian and 46% with imported coal. It has the highest calorific
value in comparison with all other competing fuels and is the most Eco-friendly. It gives
off the cleanest exhaust which is completely free from Acid Rain and other pollutants
(refer to Table I). Since LNG is free from contaminants like Sulphur, Sodium and Vanadium,
which generate corrosive after combustion products, operating costs, are comparatively one
the lowest.
India's installed power
generating capacity is of the order of 94,055 megawatts (nearly 10% of which is
contributed by Gas/Naphtha) and proposals for an additional capacity of 105,356 megawatts
are still alive on paper, being under various stages of approvals/implementation. (Refer
Table II). If these plans get implemented, approximately, 24% of this capacity would be
provided by Gas/Naphtha. However LNG is comparatively cheaper and enjoys better price
stability. Furthermore, LNG being available in abundant quantities in the Mid East
Countries, Malaysia, Indonesia and Western Australia, which involves fairly short shipping
distances, LNG would gain precedence over Naphtha in this niche. Some of the prominent
Power Generating Companies like TATA Electric Power Company is planning to even convert
their IPPs from coal to LNG. It is likely therefore that in the next decade LNG will play
a dominant role in the generation of electric power in India.
Additionally, LNG also
provides several base stocks for the production of Nitrogenous and Phosphate fertilizers
and petrochemical products in which India lacks self sufficiency and has to depend
exclusively on imports which are likely to continue in the foreseeable future. Examples of
these LNG derivatives are Ammonia, Methanol, MTBE, Formaldehyde and Methyl Methacrylate
and Acetic Acid (refer to Table III).
It is prognosticated on the
basis of above, that in a span of 5 to 10 years, Indian imports of LNG could touch 35 - 40
million Tons a year (refer Table IV). In terms of sea borne LNG trade India would then be
next only to Japan, which imports the largest and nearly two thirds of total LNG traded by
sea (65 million Tons/year). In order to cater to the sea transportation requirements of
LNG trade of this magnitude approximately 20 LNG vessels (about 130,000-cbm capacity)
would be needed. This will entail a time charter cost of over 700 million dollars per year
- which would undoubtedly impose a sizable burden on India's balance of payments.
In view of the above
perspective which has in the recent days acquired a high degree of visibility in the
international market, all kinds of multinational players interested in the cake that LNG
and related business opportunities in India present, are virtually swarming decision
makers involved in potential LNG related projects. Major players seen in this are: -
1)
|
Intending Sellers of LNG - Government supported Corporations i.e. Rasgas
and QGPC of Qatar, Oman LNG of Oman, Adgas of Abu Dhabi, Yemen LNG of Yemen, Petronas of
Malaysia, Pertamina of Indonesia and Woodside Petroleum of Australia.
|
2)
|
Integrated gas companies like Enron, Shell, British Gas, Unocal Mobil and
Gaz de France.
|
3)
|
Equipment Vendors for Power Generation like Siemens, Asea Brown Boveri and
CMS Energy.
|
4)
|
Infrastructure builders Multinational Companies, Construction companies from
the Far East ( from Korea and Japan) are the most visible
contenders.
|
5)
|
Ship yards having Shipbuilding capacity and (Mainly from Japan) and
Technology for building LNG vessels (Korea).
|
A
development of some concern that has surfaced recently in the Indian market, is the thrust
by the Suppliers, i.e. the LNG Marketing Corporations in the Source Countries (1) and the
Integrated Gas Companies (2), having substantial stake in the sale of LNG into India, to
sell Shipping Services in tie-up deals to Indian Companies intending to import LNG. The
sellers, even if they do not have any Shipping tonnage whatsoever (let alone LNG
Operational Credentials) e.g. Oman and some LNG Traders who too do not possess any
worthwhile LNG experience are vigorously pushing and enticing the buyers to relinquish the
Ownership and Management Control of LNG Shipping to them, which is contrary to the
practice followed by an overwhelming majority of LNG Importers. It is the same motivation
that pervades the marketing efforts of Japanese and Korean Corporations having
multi-billion dollars stake in selling ships and building LNG receiving/re-gassification
infra-structure in India. They are vigorously promoting tie ups for Shipping Services by
their group Companies i.e. NYK (A Mitsubishi Group Co), MOSK (A Mitsui Group Co.) and HMM
(A Hyundai Group Co.). Unsolicited suggestions for Joint Ventures are in the air in which
control of shipping should vest with the foreign partners.
In view of the fact, that
India has not enunciated a clear cut policy that should govern the transportation of LNG,
it is feared that we are unwittingly or by default, consenting to the domination of a
vital sector of our Industry by foreign Shipping interests, which will continue to cause a
huge drain in our foreign exchange resources for a long time to come due to the long term
nature of these contracts. Shipping contracts for LNG transportation entered into today
employing foreign ships, will oust the Indian Shipping from this Sector for all time to
come and this would sound the death knell of this industry which has been so painstakingly
nurtured over half a century. It is well known, that the growth of Indian Shipping Tonnage
is not only stagnating but has been declining in recent years due to a depressed freight
market. The LNG opportunity could provide it with the requisite shot in the arm that could
impart stability to our Shipping Industry through steady cash inflows available through
long-term charters. This is indeed an opportunity of a lifetime that cannot be frittered
away.
It is in this context that
a need for laying down a national policy for LNG Shipping with clear objectives that it
should serve, is inexorably warranted.
B. NATIONAL LNG
POLICY
Before delving into the
mechanics of formulating the LNG Transportation Policy it is worth considering whether the
LNG Transportation Policy should be a stand alone set of Objectives/Policy proclamations,
or be evolved as a sub set of an Integrated Public Policy dealing with all aspects of LNG
trade. Secondly, how and to what extent the Policy relating to the Ocean Transportation of
LNG should be integrated into the overall Public Policy. This should become clear after
giving a thought to some of the salient facets of the Public Policy that are likely to
impinge on the LNG trade in a country such as ours, having practical regard to the fact
that LNG trade always transcends across borders of several countries, serves several
Industrial goals in an Industrial Society and involves a vast number of players such as:-
the Gas sellers in the host country, gas buyers, investors/sponsors of associated
Industrial and infra-structural complexes, consumers/guarantors, transporters,
suppliers/vendors of capital equipment’s, insurers and risk managers each having
their own corporate goals and almost all belonging to different countries having different
financial, legal and tax regimes. It must, therefore be ensured that, at least, broad
objectives of the National Policy on LNG, that are consistent with overall national
interest, are identified and built into each of the subsets of the overall National
Policy. Some of the facets of Public Policy bearing relevance to the LNG trade are briefly
surveyed hereunder along with some directional suggestions/comments. A discussion among
the key decision making echelons in the inter related ministries, government departments
and trade organizations would provide the right forum and opportunity to evolve a balanced
National Policy.
1)
|
Energy Security Policy
The objective of this
policy should be that the country is assured of an uninterrupted availability of energy
over a defined span of time, say 20 years or 50 years. An assessment has to be made of the
overall energy demand projections in the defined time perspective and the means/resources
necessary to satisfy this demand are to be prognosticated after taking into account the
existing and potential national reserves and costs of exploring and developing new
resources. The possible modes of transporting the energy resources to the site of its
intended conversion into electric or other means of power has to be considered and planned
for implementation at shorter time intervals of say 5 years. Shipping and Pipelines are
the only two modes of LNG transportation. An integrated system of distribution such as a
national LNG Grid supported by nationally controlled shipping fleet could provide the most
cost-effective network for serving national goals to distribute LNG over a long time
perspective.
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2)
|
Industrial Policy
The objective consideration
in regard to this policy input to the formulation of LNG Policy would be to ascertain and
provide the total power demands needed to sustain a pre-planned level of Industrial and
Economic growth. Another possible input could be to make available a viability analysis of
the relative costs of competing feed stock materials which can produce the same
intermediate or end product, so as to enable the production of the end product at the
minimum cost to the consumer. It is in view of the fact that various fertilizer
intermediates, like Ammonia and several petrochemicals, (derivatives of LNG) can be
produced either using LNG as feed stock or alternatively, i.e. directly importing these
products instead. This would enable a better assessment of the total national LNG
demand.
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3)
|
Environmental Policy
Should lay down the
national preferences with regard to the choice of fuel for Power generation so as to bring
about the desired level of environmental pollution control. It is customary in all
Industrial economics to lay down the acceptable levels of contaminants in the fuel such as
sulphur and ash content or prescribe a cap for the pollutants in the exhaust such as Sox,
Nox and carbon monoxide, etc. It is obvious that environmental norms so prescribed would
greatly influence the share of power generated by LNG possibly at the expense of Coal
generated Power.
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4)
|
Foreign Policy
Having regard to
geo-political environments in our region it should be desirable to prescribe by way of a
national objective that the sources of LNG supply are diversified to a reasonable extent,
so that in the event of unforeseen hostilities or political instabilities in any
geographical region or source country, the security of the energy supply is not
jeopardized. National perceptions of our futuristic relationship with host countries
supplying LNG would need to be kept in view. A well considered policy prescription in this
behalf will not only insulate us from possible supply interruptions, it would also assist
in maintaining a long term price stability for imports and build a wider spectrum of trade
relationships.
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5)
|
Electric Power Policy
Having regard to the
objective of ensuring a well balanced industrial development and making the energy
resources available at the least overall cost, it would be desirable to earmark the share
of each energy resource in the generation of electric power. It should be a conscious
national decision to allocate the percentage of power produced by LNG having regard to its
CIF Cost, environmental benefits and low operating costs. It would also be useful to
provide a Policy direction towards consciously increasing the share of one resource over
the others having an eye on the future availability and projected import costs of the
competing resources as well as the capital costs of the futuristic alternatives involved.
Phasing out some of the obsolete power plants fueled by Coal in favour LNG based units is
already setting in as a trend for future in India and abroad.
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6)
|
Energy Tariff Policy
Electricity supply in
India, for political and historical reasons is perceived to be a public service rather
than a public utility, a concept which militates against the climate for attracting
investments into this sector. In the context of LNG generated electricity it is
unavoidable that this commodity is treated as a public utility which must be paid for,
failing which the viability and integrity of the LNG chain is bound to break down. There
could hardly be any room for populous and politically expedient rhetoric such as that
electric power will be supplied free to a particular section of the Industry, society or a
region. In this context, it would be desirable that the authority to set the electricity
tariffs is vested in a central body rather than state bodies so that a balance between the
inputs and outputs of the LNG chain is ensured on a uniform national basis and no link of
the LNG chain gets stressed unduly. System of subsidies, wherever imperative, must be well
defined and laid down for long perspectives of time.
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7)
|
Infrastructure Policy
The objectives of this
policy should be to demarcate the locations of power generation stations as also other LNG
related industries such as Petrochemical and Fertilizer units, with a view to, evenly
distribute the benefits of industrialization in various regions of the country.
Infra-structural facilities for LNG reception are highly capital intensive and in a
resource scarce country like ours we can ill afford to build LNG infrastructure in
competing locations at short distances. Location of GP LNG at Pipavav, Petronet at Dahej,
Essar/Shell at Hazira, Unocal/Natelco at Maroli, Tata/Total at Mumbai, DPC/Enron at
Dabhol, do not appear to be guided by a sensible approach to locating the LNG receiving
facilities in a cost effective manner. Most of these LNG terminals presently under
implementation/consideration would cost several hundred Crores each. Safety hazards of
such installations, in large numbers should also be a cause for national security concern.
Here again, there is apparently a case that it should perhaps be the Central Govt. that
should prescribe some guidelines for the location of LNG receiving Terminals rather than
leaving it to State Governments. Furthermore guidelines also would need to be prescribed
in regard to the ownership of such infrastructure installations and the manner in which
the investments will be recouped i.e. by way of a levies and or Port charges spread over
the volume of products handled by the serving infrastructure or any other form of service
charge that would ensure a reasonable rate of return for the investor.
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8)
|
Maritime Policy
LNG is undoubtedly a
strategic commodity as determined by major users of this product such as Japan and Korea
(who jointly account for 75% of Worlds LNG Imports) . The impact of the freight revenue if
retained within the ambit of Indian trade basket being of the order of about 700 million
dollars per year as stated in the Preamble, it is bound to have a significant bearing on
India's balance of payments. Having regard to observations made in the Preamble and in the
foregoing paragraphs, it would be inevitably desirable that, we must, like Japan and
Korea, prescribe a policy declaring LNG as a strategic trade thus ensuring dominant
participation for the Indian ship owners. A discussion on this subject will follow in the
foregoing part of this paper.
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9)
|
Balance of Trade Policy
Indian Economy has had to
contend with an ever-increasing volume of trade deficit. Historically, for several years
in the past, Imports have always outstripped the exports and, in dollar terms, the gap
continues to widen. Consequently the intrinsic value of Rupee has steadily depreciated in
comparison with currencies of trade surplus or economically strong countries. Consequently
the expansion of foreign trade for which imports in larger volumes are inescapable does
not seem to confer the benefit of increasing our national wealth and strength of our
currency. Thus controlling the trade deficit continues to remain our much-desired national
objective.
Imports of LNG in such
large quantities, as anticipated, i.e. nearly 40 million tons/year in the next decade, is
estimated to levy a foreign Exchange outgo burden of nearly US $ (4.5 - 5.0) billion per
year @ US $.2.6 per million BTUs and the Transportation Cost (inclusive of fuel and other
charges) will be an additional outgo of about 1.4 billion @ 0.75 cents per million BTUs.
A prudent approach will
undoubtedly suggest that every effort should be made to ameliorate this ever-growing
burden on India's Balance of Payments. Control of Shipping offers an opportunity not only
to conserve the freight outgo but also to effectively control the FOB cost of LNG imports
as well, through diversification of Supply Sources and taking advantage of options
discussed in Section D of this paper.
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C. JAPANESE EXAMPLE
The Japanese Government has
dealt with the LNG trade (Import and Transportation) in the following manner:-
- A national committee on LNG comprising of
Ministry of Trade and Industry (MITI), Ministry of Finance (MOF), Ministry of
Transportation (MOT) has been set up for the purpose of setting goals and to provide the
baseline for the national LNG policy.
- Liquefied Natural Gas (LNG) has been
declared a strategic commodity.
- Control of LNG shipping has been declared as
strategic necessity.
- Share of total power generated by LNG was
initially set at 10% to 12%; it has been gradually increased to 25% as of now.
- A well-enunciated legal and financing
structure has been provided to regulate and promote LNG Trade and Transportation.
- Modification of the charter of Japanese
Development Bank has been made for facilitating investments in LNG infrastructure and
ships.
(A summary of Japanese LNG
strategy is given in Annex. III)
It is pertinent to mention
that just as the situation in which Indian shipping stands today, the Japanese ship owners
had initially engaged foreign LNG operators who assisted them to phase in the know-how of
LNG operations. However, at the present juncture they have completely absorbed and
indigenised the operations of LNG vessels just as Indian Shipping Companies have mastered
the LPG operations. Further with the supportive policies laid down by the Japanese
Government the ownership control of LNG fleet has also been nationalized completely.
ADVANTAGES OF THE
JAPANESE MODEL (i.e. BUYERS CONTROL OF LNG TRANSPORTATION)
Control of Shipping by the
buyer enables diversification of supply sources and bestows a freedom from domination of a
single supplier. Tokyo Electric Power Company (TEPCO) sources their LNG supplies from as
many as six countries. It affords better control of price negotiations and reduces the
overall cost of supplies. It would be seen from the study of Annex. 1a and 1b that
approximately 120 Billion Cubic Meters of LNG (110 BCM for end 97 + 8% approx. annual
growth) are being currently traded by sea. Potential New Supplies of LNG, which are on the
shelf awaiting immediate commercialization of production for want of buyers are also
nearly of the same volume. This implies a 100% surplus ready for being tapped. Thus the
market is poised to move in favour of potential buyers for a foreseeable future. This
available freedom of choice can assist the buyer only if the control of shipping is
wielded by him.
Control of Shipping enables
the Buyer to affect cost reduction of his imports by availing of the swing volume margins
inherently incorporated in the Supply and Purchase Agreements (SPAs). The contracting
practices currently in vogue in LNG trade permit the buyer to fix the quantity of the
annual lifting with considerable flexibility of volumes between the Take or Pay Quantity
(MBQ) and the Maximum.
(Explanatory Notes)
- Minimum Billed Quantity (MBQ) is the
quantity of the gas, which the Buyer is obliged to lift on an annualized basis. The
failure to do so will entail a "take or pay" penalty. This volume is normally
fixed at about 80% of the average Annual Contract Quantity (ACQ). However since the power
supply demand varies with seasonal changes, the maximum lifting will take place normally
in the winter months, the MBQ could be 60 - 65% of the Maximum Demand Quantity (MDQ) . In
fact the Minimum Billed Quantity (MBQ) can be also passed over to the following years in
the event of the buyers inability to lift MBQ in a particular year. The Buyers thus have
lot of flexibility in their contractual obligations and can avail of the margin between
MDQ and MBQ to their advantage by sourcing LNG on best opportunity basis from alternative
suppliers which are invariably available at lower cost since all the suppliers are keen to
maximize their revenues for the year by selling the available gas even at some discount
rather than conserving it in the well. In many situations there are options of a spot
purchase and swapping the product with other users. As per Drewry approximately 3 million
tons of LNG (3% of total volume) were traded in 1997 on spot basis. However, such options
are only exploitable if the control of the transportation is firmly in the hands of the
buyer.
- Freight revenues are a sizable proportion of
the total landed cost. In the case of Japanese LNG imports the FOB cost is approximately
US$ 2.65 per million BTUs and the ocean transportation cost from WAG is approximately US$
1.25 - 1.3 per million BTUs which is approximately 50% of the FOB Cost. The control of
freight revenues therefore must be of a substantial commercial interest to the buyer.
- India, as stated earlier is seen to be an
importer of 35 to 40 million tons of LNG per year in the next decade spread over several
importers around the Indian coast. It is quite conceivable therefore that an active market
cooperation network can be built up in order to provide a strategic and cost benefit to
the country as a whole.
- At the present juncture most potential gas
suppliers are located around the Arabian Peninsula that is Oman, Qatar, Abu Dhabi, Yemen
and Iran. Due to geo-political factors that surround us and the supplier countries, it
cannot be totally ruled out that unforeseen interruptions in the supply of LNG may not
take place in the future due to hostilities breaking out or political upheavals. It would
therefore be desirable on geo-political considerations that an option is available to us
to source our supplies from the countries situated towards East of India, such as
Malaysia, Indonesia and Australia. This could only be possible, if we control the
transportation link, which would also be quite in keeping with our status as the dominant
LNG buyers of tomorrow.
E. LNG TRADE
PROSPECTS AND INDIAN SHIPPING
Even though, the National
Shipping Policy Committee constituted by the Government of India in 1997 headed by the
then Director General of Shipping: Shri M P Pinto had recommended that the emerging
potential of LNG shipping should be substantially reserved for Indian shipping companies,
it has unfortunately met with resistance from some quarters and the potential users. It is
not difficult to understand that the motivation for this resistance has been provided by
the vested interests represented by the Gas Sellers, Gas Traders and Equipment Vendors. By
and large the potential users of LNG shipping services in India seem to have been taken in
by false motivated propaganda prompted by foreign vested interests which has been nurtured
by inadequate awareness of the LNG shipping by the users, and public at large. An oft
repeated canard which has been vigorously spread is that Indian shipping companies lack
LNG expertise and their financial capabilities are insufficient to take on the burden of
massive investments that are necessary for the acquisition of LNG ships characterized by
huge capital costs. It must be said that the bulk of Indian Shipping Industry too has not
braced itself to this challenging opportunity in a pro-active manner. Neither has the
government provided a forum for an educated debate on the role that national shipping can
and should play in the LNG trade of the country. Consequently a gap does exist between
public perception and the ground realities in regard to the capabilities of Indian
Shipping Companies to service the trade.
Notwithstanding a general
public perception as evidenced from media reports, some of the Indian Shipping Companies
have, however, seriously investigated, ways and means of overcoming these purported
drawbacks and it has been found by them that the LNG vessels, are financed not necessarily
on the basis of direct asset mortgage or the strength of balance sheets of the intending
Companies, but that the financing of LNG vessels, is essentially driven by the project
cash flows. In view of the fact that the LNG vessels are from the inception, dedicated to
specific projects and are hence chartered for long tenures of about 20 years duration, the
assured revenues that flow from long term charter commitments provide an acceptable form
of security and comfort to the lenders. In fact funds are available in the international
market to finance acquisition of LNG vessels at a very low gearing. It is, also possible
to spread the loan repayments over longer tenures than the conventional shipping loans.
Some Indian shipping companies have already received assurances from the financial markets
in terms of firm commitments for the availability of financial packages for LNG Ships at
attractive terms.
As regards the alleged lack
of expertise in the Indian shipping companies to operate cryogenic vessels, at least three
Indian companies have reasonable working experience with LPG (-50° C) and Ethylene
(-104° C) vessels. Some of them have finalized working relationships and have signed
MOU's (Memorandum of Understanding) for a transfer of technology of LNG operations, in a
phased manner with operators of LNG Ships, having a good track record and internationally
established reputation.
It needs to be reiterated
that Indian shipping industry is not facing the challenge of embracing a new technology
for the first time. It is the contention of Indian Shipping Industry, that the technology
of LNG transportation is only marginally different (and not necessarily more difficult).
from LPG/Ethylene (refer to Annex. IV). It is pertinent to observe that major burden of
this difference (or complexity?) is absorbed by the design features of the vessel viz. by
Selection of appropriate materials for the Cargo Containment Systems to withstand the
lower cryogenic temperatures of -160° C for LNG and higher levels of insulation
standards, so as to obtain an acceptable rate of gas boil off. It is for this reason that
the cost of a LNG vessel of comparative capacity is approximately twice as much as that of
a LPG vessel. It is also noteworthy that construction and operation of LNG vessels is
rigidly regulated by the International Gas Carrier Code and the International Safety
Management Code (ISM) adopted by IMO which are universally binding. The Procedures and
Arrangement (P & A) Manuals which set down the Operational Procedures for Cargo
Handling Operations on board as required under the International Gas Carrier Code as well
as the ISM Documentation and Certification Procedures are mandatorily required to be
prepared by acknowledged experts and approved by Maritime Administration Authorities as
laid down by IMO. These procedures are uniformly applicable to all LPG and LNG Ships all
over the world. Thus the LNG operations on board ships of today enjoy a fair degree of
international standardization which the Indian Shipping Companies must also follow.
Similarly the qualifications and skills of shipboard staff serving on Gas Carriers of any
flag nationality have also been upgraded uniformly all over the world under the provisions
of Safety of Training, Certification and Watch Keeping (STCW 95) which has been adopted by
IMO on 01.07.1998 and is statutorily applicable for Indian Ships and Operators as well.
Therefore, it is envisaged
that the up-gradation of Operational competence from LPG/Ethylene to LNG by a Shipping
Company, would be achieved without much hassles provided however, the Indian companies
enter into workable Technology Transfer Agreements with international LNG operators. The
quality of such an arrangement and the basic ability pre-requisites of the Indian Company,
in any case, must be proven to the satisfaction of the International Lenders without whose
approval the raising of finances would never materialize. Thus the basic pre-requisites
for an Indian Shipping Company desirous of venturing into LNG Operations could be briefly
summarized as follows:-
- Operating Experience with LPG Ships.
- A Technology Transfer Agreement with an
internationally reputable LNG Operator.
- Ability to raise financial resources on the
strength of (a) + (b) and a charter commitment from the LNG importer of repute having firm
contracts for supply and sale of Gas both ways.
F. SUGGESTIONS FOR
A NATIONAL POLICY FOR LNG TRANSPORTATION
The formulation of a
Comprehensive National Policy on LNG embracing all the inter related policy aspects
mentioned in Section B would need a lot of inputs from several ministries and government
departments and would consequently take some time. However, in the meantime salient
features of a National Policy for LNG Transportation logically derived from the preceding
discussion and based on the Japanese model which to a large extent, is also being followed
by South Korea and France (the other two major importers of LNG) are suggested for
consideration and implementation.
LNG be declared as a Strategic Commodity.
- LNG Shipping be declared a strategic need of
the country.
- All LNG Imports should be bought on FOB
basis only so that Indian Controlled Shipping Companies can be encouraged and enabled to
increase their participation in this trade progressively.
- Transport of LNG by foreign Companies should
be discouraged, however without causing any obstruction to the operational needs of the
trade.
- In order to encourage participation of
Indian Shipping in LNG transportation, the first right of refusal to transport LNG into
India should be given to an Indian or Indian Controlled Special Purpose Vehicle (SPV)
registered abroad, which can mobilize funding support in the international financial
market on their own strength and technical competence built upon LPG experience and duly
supported by a Transfer of Technology Agreement, with an LNG operator of repute acceptable
to the project lenders. Transfer of Technology arrangement should provide for joint
supervision during construction of the vessel and restore complete operational control to
the Indian Company, in a time span satisfactory to the project lender but not later than 5
years after commencement of operations.
- As a second alternative, an Indian or Indian
Controlled SPV registered abroad should be taken in as an active partner in the joint
venture formed with a foreign company and which will control the operation of the vessel
for an initial period of 5 years (for which period chartering permission may be initially
given). After this period further chartering permission should be granted subject to
Indian Company or Indian Controlled SPV being given the full operational control and the
foreign partner being entitled to receive only the Bare boat component of the charter hire
for a further period of 5 years. The Indian Company or Indian Controlled SPV should, at
this stage, i.e. after 10 years, have the option of buying over the equity and any other
residual stake of the foreign partner.
- An aspirant company under (5) will have
precedence over (6).
- An Indian Controlled SPV, registered abroad
would qualify for same benefits in regard to Corporate and Personal Taxation, as available
to a foreign company rendering shipping services to transport LNG into India, so that they
are in a position to compete with foreign owners, on even terms and are enabled to offer
internationally competitive charter rates to the importers.
- Any relaxation of 5 & 6 may be granted
by the Ministry of Surface Transport only for a minimum transitional period with the
proviso that whenever Indian or Indian Controlled SPVs are in a position to fulfil 5 or 6,
the foreign Shipping Company should accept their partnership, on the terms and conditions
to be specified by the Central Government consistent with the objectives of LNG
Transportation Policy.
- Employment of Indian Officers and Seamen on
LNG vessels trading to India should be maximised.
TABLE I
Comparative
Analysis: LNG Versus other Fuels
Fuel
|
Calorific Value (Kcal/Kg)
|
% Sulphur
|
Imported coal
|
6,000
|
0.5 - 1.2
|
LNG
|
11,500
|
0.1
|
Naphtha
|
11,200
|
0.15
|
Diesel
|
10,800
|
< 1.0
|
Fuel Oil
|
10.200
|
2.0
|
Plant Performance :
Gas versus Coal
|
Coal Pulverised
|
Coal - PFBC
|
Coal - ICGC
|
Gas - CCGT
|
Efficiency (%)
|
42
|
43
|
46
|
55
|
Carbon dioxide (gm/kWh)
|
830
|
810
|
760
|
380
|
Nitrogen oxides 9mg/kWh)
|
600
|
585
|
300
|
350
|
Sulphur dioxide (mg/kWh)
|
600
|
585
|
150
|
0
|
Cooling water heat losses (MJ/kWh)
|
4.3
|
3.6
|
3.2
|
2.6
|
PFBC : Pressurised
fluidised bed combustion; ICGC : Integrated coal gasification combined cycle; CCGT :
Combined cycle gas turbines.
Source : Power Line - May
1998
TABLE II - Indian
Potential
(Existing and proposed capacity)
Existing Capacity
(By ownership)
|
|
|
Capacity (MW)
|
|
|
|
Coal
|
Diesel
|
Gas/ Naphtha
|
Hydel
|
Others
|
Total
|
State Sector
|
34,298
|
417
|
2,442
|
18,899
|
25
|
56,081
|
Public Sector
|
19,020
|
0
|
3,884
|
5,213
|
2,225
|
30,342
|
Private Utilities
|
3,208
|
0
|
585
|
324
|
917*
|
5,034
|
IPPs
|
130
|
200
|
2,398
|
0
|
0
|
2,698
|
All India
|
56,526
|
617
|
9,309
|
24,436
|
3,167
|
94,055
|
*Wind
Potential capacity
(Still alive on paper)
|
|
|
Capacity (MW)
|
|
|
Fuel
|
0-50
|
51-100
|
101-250
|
251-500
|
500+
|
Total
|
Public Sector
(including SEBs)
|
|
Coal
|
0
|
0
|
0
|
3,760
|
9,630
|
13,390
|
Gas/Naphtha
|
47
|
135
|
375
|
1,090
|
1,950
|
3,597
|
Other Liquid Fuel
|
36
|
0
|
128
|
0
|
0
|
164
|
Hydel
|
590
|
589
|
2,797
|
3,155
|
12,192
|
19,323
|
Total Public Sector
|
673
|
724
|
3,300
|
8,005
|
23,772
|
36,474
|
IPPs
|
|
|
|
|
|
|
Coal
|
0
|
0
|
1,150
|
5,490
|
19,401
|
26,041
|
Gas/Naphtha
|
140
|
728
|
3,551
|
4,353
|
10,347
|
19,119
|
Refinery Residue
|
0
|
0
|
110
|
2,300
|
700
|
3,110
|
Other Liquid Fuel
|
606
|
402
|
1,244
|
0
|
0
|
2,252
|
Hydel
|
15
|
100
|
0
|
1,430
|
2,100
|
3,645
|
Total IPPs
|
761
|
1,230
|
6,055
|
13,573
|
32,548
|
54,167
|
Private Utilities
(including licensees)
|
|
|
|
|
|
|
Coal
|
0
|
0
|
375
|
500
|
0
|
875
|
Gas/Naphtha
|
0
|
0
|
130
|
495
|
0
|
625
|
Hydel
|
0
|
0
|
|
450
|
0
|
450
|
Total Private Utilities
|
0
|
0
|
505
|
1,445
|
0
|
1,950
|
Under Bidding (proposed to be given to private or public sector)
|
Coal
|
0
|
0
|
0
|
2,375
|
2,000
|
4,375
|
Gas/Naphtha
|
0
|
0
|
0
|
0
|
615
|
615
|
Hydel
|
82
|
307
|
312
|
1,774
|
5,300
|
7,775
|
Total
|
82
|
307
|
312
|
4,149
|
7,915
|
12,765
|
All India
|
|
|
|
|
|
|
Coal
|
0
|
0
|
1,525
|
12,125
|
31,031
|
44,681
|
Gas/Naphtha
|
187
|
863
|
4,056
|
5,938
|
12,912
|
23,956
|
Other Liquid Fuel
|
642
|
402
|
1,372
|
0
|
0
|
2,416
|
Refinery Residue
|
0
|
0
|
110
|
2,300
|
700
|
3,110
|
Hydel
|
687
|
996
|
3,109
|
6,809
|
19,592
|
31,193
|
Total India
|
1,516
|
2,261
|
10,172
|
27,172
|
64,235
|
105,356
|
Source : Power Line
* June 1999
TABLE - III
LNG : Commercial
Uses
Derivatives of LNG are:
- Ammonia (NH3) obtained through a process of
Reformation and Synthesis.
- Methanol (CH3OH) through Steam Reformation -
Synthesis Gas / Catalytic Conversion.
- MTBE (Methyl Tetra Butyl Ether) - Lead free
anti-knock gasoline additive.
- Formaldehyde - Feedstock for Chemical +
Paint Industry.
- Methyl Methacrylate - Feedstock for
Production of Acrylics.
- Acetic Acid - Feedstock for Polyester Fibre
Fuel Applications of LNG:
- CNG/LCNG - Automobile Fuel - Substitute for
Gasoline & Diesel.
- Cleaner Emissions - Lower fuel and
maintenance costs (50 - 60% of range)
- As Industrial Fuel for Power Generation.
TABLE IV
(Major LNG import
terminal proposals)
Company
|
Site
|
Capacity (mtpa)
|
Petronet LNG
|
Dahej
|
5
|
Petronet LNG
|
Cochin
|
2.5
|
TIDCO
|
Ennore
|
5
|
Shell
|
Hazira
|
2.5
|
Enron
|
Dabhol
|
5
|
British Gas
|
Pipavav
|
2.5
|
Reliance, Elf
|
Hazira
|
5
|
Reliance
|
Jamnagar
|
5
|
Total, HPCL
|
Kakinada
|
2
|
Tata - Total
|
Mumbai
|
2.5
|
Al Manhal
|
Gopalpur
|
2.5
|
Unocol/Natelco
|
Maroli
|
N A
|
Source : Power Line
May 1998
ANNEXURE - 1a
(LNG IN ASIA -
DEMAND/SUPPLY)
LNG EXPORTS
|
Suppliers
|
1996 bcm
|
1997 bcm
|
Libya
|
1.1
|
1.1
|
USA
|
1.7
|
1.65
|
Qatar
|
0.00
|
2.86
|
Abu Dhabi
|
6.7
|
7.52
|
Brunei
|
7.7
|
8.25
|
Australia
|
9.1
|
9.77
|
Malaysia
|
15.3
|
19.66
|
Algeria
|
18.3
|
24.20
|
Indonesia
|
32.1
|
35.54
|
TOTAL
|
92.0
|
110.55
|
LNG IMPORTS
|
Consumers
|
1996 bcm
|
1997 bcm
|
USA
|
1.1
|
1.98
|
Italy
|
0.0
|
1.90
|
Turkey
|
2.2
|
2.90
|
Taiwan
|
3.3
|
3.53
|
Belgium
|
3.7
|
4.80
|
France
|
6.6
|
9.20
|
Spain
|
7.1
|
6.26
|
Korea
|
12.0
|
15.71
|
Japan
|
56.0
|
64.27
|
TOTAL
|
92.0
|
110.55
|
Source
: Cedigaz, Paris
ANNEXURE – 1b
LNG IN ASIA - NEW
SUPPLY SOURCES
POTENTIAL NEW LNG EXPORTS
|
PROJECT
|
SIZE (bcmy)
|
Gorgon (Australia)
|
10
|
Undan Bayu (Australia)
|
4
|
Bonaparte (Australia)
|
3
|
Irian Jaya (Indonesia)
|
6
|
Natuna (Indonesia)
|
7
|
Papua New Guinea
|
4
|
Qatar III
|
7
|
Sakhalin I
|
8
|
Sakhalin II
|
6
|
Trans-Alaska
|
19
|
Pac Rim
|
4
|
Yemen
|
7
|
Egypt
|
10
|
Venezuela
|
8
|
Iran
|
Not known
|
TOTAL
|
103 +
|
Source :
Cedigaz, Paris
ANNEX. - III
THE STRATEGY OF
JAPAN
Natural gas imports (all in
the form of LNG) are handled by well - established, credit worthy, large regional
utilities:
- Electric utilities.
- Gas utilities.
The Japanese government
encourages tariff stability and indirect support. No use of sovereign guarantees is
necessary. The support consists of:
- Government lending to LNG exports projects
delivering LNG to Japan.
- Support of Japanese consortia for risk
sharing.
- Support for Japanese control of more LNG
shipping.
- There is no foreign participation in
strategic gas infrastructure such as LNG terminals or gas transmission pipelines.
- Risk reduction tactics by Japanese
companies:
- Control transportation of LNG to Japan.
- Investment in upstream gas production for
LNG exports projects.
- Creation of consortia to share and spread
risk.
- Purchase of LNG from multiple sources:
Indonesia, (b) Malaysia,
(c) Alaska, (d) Qatar, (e) Abu Dhabi, (f) Brunei and (g) Australia.
- Negotiation for access to expansion
potential of sources with large gas reserves, sources with low production costs and
sources with low political risk:
Indonesia, (b) Malaysia,
(c) Brunei, (d) Australia, (e) Qatar and (f) Abu Dhabi.
- Pooling and sharing of LNG supply among
buyers in event of supply interruption.
(Source: Liquefied Natural
Gas: Developing International Energy Projects by Gerald B Greenwald)
ANNEXURE – IV
Technological
comparisons (LPG/LNG ships operation
LNG SHIPS
|
LPG SHIPS
|
Double hull structure with cargo containment, Suitable for - 160° C
|
Double hull structure with cargo containment, Suitable for - 50° C for
LPG & - 104° C for Ethylene
|
Cargo tank material - Stainless Steel (36% Ni) or Aluminum Alloy - Heavily
insulated
|
Cargo tank material - 6 -9% Nickel Steel - Moderately insulated
|
High capital cost
|
Capital cost less than 50%
|
Life expectancy (35 - 40 years)
|
Life expectancy (30 - 35 years)
|
No re-liquefaction plant
|
Re-liquefaction plant fitted
|
Vapour Boil off - Fuel for Boilers
|
No vapour release
|
Steam propulsion
|
Diesel propulsion
|
Cargo - Single Product - No change in cargo
|
Cargo - Multi Products - Frequent cargo changes
|
Fixed two port operations
|
Multi port operations
|
Non corrosive
|
Chances for corrosion due to cargo change overs/NH3
|
No bio - chemical hazards
|
Bio-chemical hazards - Reactivity with previous cargoes, moisture, Air.
|
|
