Getting affordable LNG for Dabhol will be difficult

Vol 9, PW 16 (17 Nov 05) Midstream & Downstream

Equity aside, Petronet-LNG is willing to help source LNG for Dabhol and oversee completion of the LNG terminal but at a price.

This will be done for a fee through an agreement that specifies Petronet-LNGs role and responsibilities, we learn. Petronet-LNGs director technical Sham Sunder would lead any such effort.

Completing the Dabhol terminal is not difficult, we hear. Dabhols problem is that it wants LNG from 2006 and from that year till 2010 no LNG is available.

Production from all the trains during this period are tied to purchase contracts. Two possible sources are Qatar and Malaysia.

In Qatar every train has been tied up, we hear. They could still sell LNG to new customers if the price is right.

A bigger problem is the insistence by Maharashtra State Electricity Board that Dabhol should produce electricity at no more than Rs2.75 per KwH. This means delivering LNG at a landfall price of $4.10 per mmbtu or $3.75 per mmbtu FOB from Qatar.

When Taiwan, Japan and the US are willing to pay $14 per mmbtu for LNG delivered at landfall, how can Qatar justify a significantly lower price to India Dabhols present owners GAIL and NTPC should make it clear that it is not possible to generate electricity at Rs2.75 per KwH at present LNG prices. One solution is for MSEB to agree a slightly higher price of Rs3.75 per KwH.

That will allow some leverage for a higher LNG price. Even still, it seems unlikely Dabhol can procure LNG by the government-set start-up target of June or July 2006.

Petronas of Malaysia has spare liquefaction capacity of 2.4m t/y from de-bottlenecking of existing trains but shipping costs to Dabhol are $1 per mmbtu unlike $0.26c from Qatar. Seventy four cents is a significant difference, we are told.

It makes no sense to import from Petronas.