Anxiety grows in government over lack of cheap LNG

Vol 9, PW 4 (01 Jun 05) People & Policy

No one will admit it but a sense of alarm seems to be gripping the Indian establishment over its inability to secure LNG at affordable rates.

Even the Prime Ministers Office seems worried. On 4th May, TKA Nair, principal secretary to the prime minister, called a meeting on plans to source 2.3m t/y LNG to fire the expansion of NTPCs 350-MW Kayamkulam power plant in Kerala by another 1950-MW.

Nair was bluntly told by NTPC chairman CP Jain that, it would be difficult to buy LNG on a stand-alone basis for the (Kayamkulam) project at an affordable rate. NTPC should know.

Oman LNG - one of several companies it has approached says it has no spare capacity. In February, GAIL also approached Oman LNG to see if it could revive a 20-year SPA to supply 1.6m t/y LNG to Dabhol.

Under this agreement, LNG was to be priced at $2.7 x JCC (Japanese Crude Cocktail) which at $40 crude would bring the FOB price to $6 per mmbtu. Oman LNG has confirmed that it can supply 0.5m t/y to 1m t/y from 2007 but oil secretary Sushil Tripathi believes $6 per mmbtu is unacceptable.

The pricing formulation needs to be revised, writes Tripathi to BK Chaturvedi, cabinet secretary, in a letter last February, as under the present circumstances the FOB price works out to be $6 per mmbtu, which would make the (Dabhol) project totally unviable. If unviable for Dabhol, is $6 per mmbtu also unviable for Kochi or Dahej (Petronet-LNG) Ennore (Indian Oil), Mangalore (ONGC) or anywhere else Yes, which is why India is banking heavily on two sources where it believes it can get below market price gas: Iran and Qatar.

During the 4th May meeting, Tripathi stressed that talks are at an advanced stage to secure 7.5m t/y LNG from Iran and up to 25m cm/d from an overland pipeline through Pakistan. He also said discussions are being held with Qatar for an additional 15m t/y.