Vol 3, PW 8 (12 May 99) Midstream & Downstream

In the 31/Mar/99 issue of Petrowatch, we reported on a blueprint document prepared by Indias fertiliser industry for the import of 7m tonnes a year (t/y) of LNG as feedstock for urea plants.

Not surprisingly, the report has received its fair share of criticism. The most trenchant has come from the Gas Authority of India (GAIL).

In a three page document seen by Petrowatch, GAIL lists a series of objections:- *GAIL thinks it wrong that the proposed approach for project development is based only on "an integrated approach where the LNG buyer and seller together develop the entire chain". GAIL suggests that the "conventional approach also be examined".

ie. where the LNG seller develops the gasfield, installs a liquefaction plant and export terminal, while the LNG buyer installs and operates an LNG import terminal, regasification plant and distributes to consumers in his home market.

*GAIL criticises the report for not including a detailed schedule for the projects implementation or a detailed discussion on the issue of LNG pricing, as well as contractual and commercial issues relating to the viability of domestic gas over LNG. Since fertiliser plans are switching from domestic gas to LNG this is clearly an important issue for GAIL which currently supplies all domestic gas produced by ONGC.

*GAIL accuses the report of getting its numbers wrong. In the report, the cost of liquefaction is assumed at $1.7 MMBTU in the first year, going down to $0.3 MMBTU in the year 2020.

According to GAIL, this cost is low compared to international rates. For GAIL, the initial cost of liquefaction is in the range of $1.7 to 2.0 MMBTU, going down to $1.4 to 1.5 MMBTU.

On the capital cost of liquefaction, GAIL suggests that the reports estimate of $1.67bn for a 7m t/y LNG train is low compared to international norms. *GAIL rejects the recommendation of the report for an "unincorporated joint venture" with limited liability to oversee the project.

GAIL doubts the workability of such a project structure. The document from GAIL - dated 17 March - was submitted in the days following presentation of the report to Surjeet Singh Barnala, fertiliser minister, on 22 March.

It was forwarded by TK Majumdar, Deputy General Manager, GAILs Business Development Group, to US Awasthi, Managing Director, Indian Farmers Fertiliser Cooperative (IFFCO), with a copy also to to S Bhavani, Director (a bureaucrat), Department of Fertilisers and Manu Seth, Managing Director,Tata Chemicals.