Japan and $100 oil blamed for LNG shortage in India

Vol 11, PW 15 (15 Nov 07) Midstream & Downstream

Everyone knows fertiliser manufacturers in India face constant shortages of gas; many buy 'spot' R-LNG to make up the shortfall.

But with demand for LNG in Japan soaring, fewer â€کspot’ LNG cargoes are finding their way to India and fertiliser companies are reluctantly resorting to naphtha – again. Japan is not the only culprit.

Fertiliser companies contacted by PETROWATCH also blame government efforts to revive the power plant at Dabhol, previously owned by disgraced trader Enron, but now owned and operated by Ratnagiri Gas & Power, a 50:50 joint venture between GAIL and NTPC. “It seems most of the LNG arriving at Dahej is being diverted to Dabhol,â€‌ complains one fertiliser industry source.

“With crude prices trading at over $100, spot R-LNG prices have also gone up.â€‌ In July Petronet-LNG signed a one-off agreement with RasGas for 1.5m tonnes of LNG, destined solely for Dabhol.

“Petronet-LNG is not importing much â€کspot’ LNG these days,â€‌ adds a source. Another fertiliser contact reveals that GAIL is offering R-LNG at Rs641 per mmbtu, equivalent to $16.29 per mmbtu, plus taxes and transmission charges.

This is expensive by any standard, but not as expensive as naphtha, presently trading at around $800 per tonne, equivalent to around $21-$24 per mmbtu. Two months ago naphtha was trading at around $600-$650 per tonne.

So critical has the situation become that on November 5 one fertiliser company in a meeting with fertiliser ministry bureaucrats pressed them write to oil secretary MS Srinivasan “to do something about the situation.â€‌ Sympathetic, Shell and Total, operators of the Hazira LNG terminal are powerless.

“Hazira is certainly helping to fill part of the gap and LNG has been supplied to fertiliser manufacturers almost from the onset of commercial operations in 2005,â€‌ we hear. “But there are hard capacity constraints and Shell-Total also have loyal non-fertiliser customers who need LNG.

â€‌ More to the point, argue analysts, Indian fertiliser manufacturers will have to accept the reality of paying “international market prices for gas, in the same way we pay the market price for oil, steel, coal and grain.â€‌