[NGW Magazine] H-Energy's plans for Indian gas
India has set some ambitious goals for switching to gas, including in the domestic and the transport sectors, but the infrastructure is not there yet. This represents a massive opportunity for companies specialising in supply.
With demand for natural gas projected to expand significantly in coming years, a number of companies are investing in the natural gas value chain. Although, the sector is dominated by state- or quasi state-owned companies, few private firms are looking to expand their footprint as well. One of the most aggressive companies working in the Indian gas sector is Mumbai-based privately owned firm H-Energy. The company has planned several projects, including floating LNG storage and regasification units (FRSU) on India’s west and east coasts; city gas networks (CGD) in west, south and east India; a gas pipeline connecting west and south India; and LCNG distribution network and an LNG truck loading facility at its west coast terminal.
The FSRU on the west coast is expected to be on stream by the end of this year. In May, H-Energy said that the FSRU GDF Suez Cape Ann had arrived at Jaigarh Port in Maharashtra.
Owned by Hoegh LNG, it is on charter to France's Engie which had sub-chartered it to China's Cnooc for the last two winters for use at the Chinese port of Tianjin. The FSRU has regasification capacity of 4mn mt/yr with an uptime of 99.75%.
Jaigarh terminal infrastructure includes full-year cargo receipt facility, dedicated LNG jetty and ability to receive Q-Flex category vessels. The Jaigarh terminal will also have a truck loading facility, which is under construction, and is expected to be ready by April 2019, Manish Tiwari, vice president (marketing and trading) at H-Energy said in Mumbai during an industry event early July.
The FSRU that H-Energy is developing on India’s east coast will be at Kukrahati in the state of West Bengal. The company is expected to take the final investment decision (FID) by end-2018 and the FSRU is expected to become operational in 2021.
The company has also decided to venture into the Indian CGD sector for the first time, bidding for several areas during the ninth CGD bidding round that closed July 10. H-Energy has bid for licences to retail gas in areas in the western Indian state of Maharashtra, southern state of Karnataka and some eastern states.
Another project that the company is working on is a gas pipeline that would connect Jaigarh to the southern Indian city of Mangalore. The 635-km pipeline will be partially commissioned in 2019, Tiwari said. The pipeline will have a capacity to transport 17mn m3/d of gas and will pass through cities like Panjim in the state of Goa and Karwar and Udupi in the state of Karnataka before reaching Mangalore. The company expects that this pipeline will open new gas markets in the region. H-Energy is also building a 60-km Jaigarh-Dabhol tie-in connectivity pipeline with a capacity of 29mn m3/d. It will connect the Jaigarh terminal to the national gas grid at Dabhol.
Share of LNG to remain over 50%
As India struggles to increase its local gas production, reliance on imported LNG will continue to be high in the foreseeable future. Imported LNG makes up more than half of India’s total gas availability. According to India’s oil ministry, LNG imports accounted for 55% of the country’s total gas consumption in May 2018, the latest month for which the data is available.
Tiwari believes LNG’s share in India’s gas mix will average around 55% in the long-term. Domestic production will gradually increase but will remain well below demand. Growth in gas production in near-term will be driven by output from state-owned ONGC’s western offshore fields, KG basin and coalbed methane (CBM) blocks.
As growth in local gas output remains sluggish amid rising demand, and share of LNG remains high in the gas mix, efforts are on to expand India’s import and regasification capacity. Some existing terminals, such as Petronet LNG’s at Dahej, are expanding capacity and some new ones are expected to be operational in next few years. Once these projects are complete, India’s regasification capacity is expected to rise to 70mn mt/yr by 2025 from 30mn mt/yr as of today.
Increasing role of FSRUs
India has been importing LNG via its four-land based terminals on the west coast. With a combined capacity of 30mn mt/yr, the four are: Petronet LNG’s two terminals at Dahej and Kochi; Gail’s terminal at Dabhol; and Shell’s terminal at Hazira. As India’s import capacity increases over the next five years, FSRUs will play an important role in contributing to the expansion.
About half of the new capacity online between now and 2021 will be FSRUs. India’s total regasification capacity will rise to 60mn mt/yr by 2021 with FSRUs taking up nearly 20% of that capacity, Tiwari said. Apart from H-Energy’s Jaigrah and Kukrahati terminals, other FSRU based terminals that are likely to be operational in next few years are Swan Energy’s at Jafrabad on west coast and AG&P’s at Kairakal on east coast. New regasification capacity is needed in central-eastern and north-eastern India. “FSRUs present an ideal solution for quick and reliable import of LNG,” he said.
Fertilizer, CGD to drive gas demand
At present there are four sectors that are major consumers of gas in India: fertilisers, power, CGD and industry. Over the next decade, fertiliser and CGD sectors will be the primary drivers of gas demand. Revival of existing fertiliser units and conversion of naphtha-based plants to gas-based will underpin the demand in fertiliser sector, Tiwari said.
CGD sector hold a lot of promise thanks to government’s focus of more gas demand at home for cooking and in commercial vehicles for transport. The sector has been given priority in the allocation of domestic gas. Supplying regasified LNG to the sector has also been strong thanks to its competitiveness relative to liquid fuels. The latest CGD bidding round that closed July 10 saw extremely positive response from the industry. Indian downstream regulator Petroleum and Natural Gas Regulatory Board (PNGRB) said it has received more than 400 bids during the round. India is rolling out networks in 86 new areas covering 174 districts in 22 states/union territories. Tiwari argued that gas demand will continue to increase in the CGD sector with total realisable demand from the 86 areas be around 21mn m3/d by 2027.
Although demand expectation from the CGD sector remains extremely positive, some legacy issues could have an adverse impact. Demand growth depends heavily on the development of CGD infrastructure, which has historically been slow owing to a variety of reasons, chiefly land acquisition and red tape. Also, including liquid fuels like petrol and diesel in the goods and services tax (GST) may lead to drop in prices, eroding some of the advantage that gas enjoys.
Gas-based power plants will struggle to be demand drivers thanks to poor competitiveness of regasified LNG versus other fuels such as coal. At the moment about 14 GW of gas-based power plants out of the total 25 GW are completely stranded because they lack gas; while the remaining plants are operating at an average plant load factor of just 24%, Tiwari said, adding, that any increase in gas demand from the sector will come only if there is a policy support from the government.
Asian dynamics
It is not only India where the government has been pushing for greater use of gas in the economy. China's coal-to-gas switching policy which came into effect early last year had a massive impact on the global LNG market. Pakistan's government said that regasified LNG will play an important role in country’s energy mix.
Tiwari said that in China LNG import growth is expected to increasingly come from ramp-up in contracted volumes, as state-owned companies are less likely to rely on costly spot purchases, unlike last year. In Pakistan, imports are expected to ramp-up in 4Q 2018 and 1Q 2019 to close to 0.75mn mt/month. The country at present has two operational FSRU based terminals. Meanwhile, Bangladesh became the newest LNG importer in south Asia with the arrival of Qatari cargo in April this year aboard the Excellence FSRU at the port of Moheshkhali.
The project was co-developed by Petrobangla, US specialist shipowner Excelerate Energy and IFC, a member of the World Bank group, with a project cost of $180mn. The FSRU is expected to add about 0.13mn mt/month of regasified LNG this winter through already committed Qatari volumes. “Because of sufficient Qatari supplies, we don’t see Bangladesh buying any spot cargoes for at least another six months,” Tiwari said.