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Suresh Mathur
October 21, 2011
LNG ECONOMICS
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LIQUEFIED NATURAL GAS (LNG)o LNG is a natural gas cooled to -162C
o Liquefaction reduces the volume of gas by approximately 600 times
o LNG is a cold, transparent, odorless, non-corrosive, non-toxic and has low viscosity.
o LNG is safer than other liquid fuels.
Fuel Calorific Value
(Kcal/Kg)
% Sulphur
Imported coal 6,000 0.5 - 1.2
LNG 11,500 0.1
Naphtha 11,200 0.15
Diesel 10,800 < 1.0
Fuel Oil 10.200 2.0
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LNG - A SAFE OPTION
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-
50.00
100.00
150.00
200.00
250.00
2009-10 2010-11 2011-12 2012-13 2013-14 2014-15
Gas Demand (MMSCMD)
Power Fertilizer City Gas Petchem-Refinery Sponge Iron
2010-11 2011-12 2012-13 2013-14 2014-15 Basis
Power 87.71 149.11 185.52 212.73 243.34
Units planned
Fertilizer 49.39 57.48 68.08 68.08 68.08
Units planned
City Gas 13.70 17.53 22.44 28.72 36.76Trend
Petchem-Refinery 24.44 25.42 26.43 27.49 28.59
Trend
Sponge Iron 3.71 3.82 3.93 4.05 4.17Trend
Total 178.94 253.36 306.41 341.08 380.95
Source: Mercados Analysis.
PROJECTED DEMAND FOR GAS
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GAS PRICES IN INDIA
PRODUCER
LAND FALL
PRICE
MARKETING
MARGIN
CENTRAL
SALES TAX
TRANSMISSION
CHARGES SERVICE TAX TOTAL PRICE
US$/MMBTU (US$/MMBTU) 2% (US$) US$/ MMBTU 10.30% (US$) (US$/MMBTU)
ONGC/Oil APM
(including Royalty) 4.20 - 0.08 0.60 0.06 4.94
ONGC C Series
(including Royalty) 5.25 0.12 0.10 0.60 0.06 6.13
PMT 5.65 0.11 0.12 0.60 0.06 6.54
Other JVS (Ravva) 3.50 0.11 0.07 0.60 0.06 4.34
RLNG 8.70 0.17 0.17 0.60 0.06 9.70
Reliance KG6 4.20 0.14 0.09 1.80 0.19 6.42
However, presently Spot/ Shot Term RLNG Price at customer end is around US$17-18
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SOURCE: Indianpetro; DGH; Company annual reports; Expert interviews; McKinsey analysis
146185
46
185
35
185
77
185
4591
126
203
40
311
High Potentialdemand,2015
388
Price of $8-10 mmbtu
Medium Price of $11-12/ mmbtu
276
Price of $13-14/ mmbtu
59
171
Price of $16-17/ mmbtu
Low
25
19
230
2010 yearendconsumption
Gas demand and supply, 2015
Mmscmd, at customer gate prices
LARGE DEMAND BUT SENSITIVE TO PRICE
1 Based on estimated LNG supply of 8 mtpa in 2015 including RasGas (7.5 mtpa) and 1.5 mtpa from Gorgon LNG in 2015
21 3 4
Imports
Domestic supplies
Sectors withdemand
Industries CNGtransport
Refineries Industries
Powercogen
Peakingpowerplants
Baseloadpower
New fertilizerplants
Prices at Crude of $ 100/Bbl
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NATURAL GAS IN POWER SECTOR
Between 2011-12 & 2012-13 anadditional Gas based capacityaddition expected to be around12200 MW.
Role of LNG in Power Sector: Complementing domestic gas
usageIn peaking and merchant Power
99503,
(55%)
17706,
(10%)1199.75,
(1%)
38206,
(21%)
20162,
(11%)
4780,
(2%)
Coal
Gas
Oil
Hydro
Renewabl
e
Nuclear
Power Generation Capacity of 181558 MW)
As on August, 2011
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AVERAGE ELECTRICITY PRICE TO CONSUMERS
COUNTRY USD/KWH
Japan 0.22-.0.30
France 0.17-0.20
UK 0.23 -0.25
USA 0.10-0.11
India 0.06-0.08
China 0.08-0.11Brazil 0.11-0.15
Source : IEA & others
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ROLE OF LNG IN PEAKING POWER GENERATION
Presently, Indias LNG import capacity is around 13.5 MMTPA through its
two terminals & meeting approx. 20% of total gas supply.
A majority of power capacity addition is based on coal which has limited
flexibility for providing peaking power
LNG would also play a role in mitigating demand-supply gap for new
under construction combined cycle (base load) capacities.
Given that the LNG imports are unlikely to be in the price range suited
for base load power, R-LNG can serve as top up fuel for base load
plants thereby augmenting the PLF and providing solution for meeting
the PEAKING POWER DEMAND.
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POWER COST WITH VARIOUS FUELS
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LNG based power generation with integrated LNG Terminal:
No VAT on Natural Gas
No Marketing margin & pipeline tariff
Harnessing of cold energy to increase efficiency of power plant
High reliability and ability for generation of peaking power
Pricing a challenge , however can be mitigated through :
mix of domestic gas and RLNG
Targeting niche markets like liquid fuel replacement in industries, housing
societies etc.
Bilateral Agreements with quality Industrial power consumers
LNG UNIQUENESS OF INTEGRATED POWER PLANT
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NATURAL GAS IN FERTILIZER SECTOR
India is the 3rd largest fertilizer producer in the world.
Around 35% expansion of Fertilizer capacity expected over the next 3 years
Presently, India has 56 large size fertilizer plants. Natural gas on account of
clean & efficient source of energy becoming preferred feedstock for the
manufacturer of urea over other fuels.
Assured availability of gas a constraint for expediting conversion process.
With competition from Imported Urea, LNG to complement usage of
Domestic gas with some policy level changes expected to take place shortly
Demand
Period BCM MMSCMD
2011-12 21 57
2012-13 25 68
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NATURAL GAS IN CGD
Environmental concerns along with fuel economics driving force for CGD growth
CGD coverage expected to increase to over 200 cities by 2025
Current demand of Natural Gas for CGD is around 12 MMSCMD, expected to
grow to around 35- 40 MMSCMD by 2017
Rapid CGD pipeline infrastructure being laid
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NATURAL GAS IN INDUSTRY
Industrial sector consumers are ceramic, glass, automobiles and other
manufacturers for feed stock and fuel for captive power generation
Niche sector for LNG consumption expected to grow with GDP growth in the
country
Willingness to pay more for gas as compared to other sectors as liquid fuel is
costlier
Various new refineries and expansion like Panipat, Bina, Bhatinda, Paradeep
expected to come on-stream shortly
New Petroleum, Chemicals and Petrochemical Investment Regions (PCPIR)
policy aimed at developing India as a hub for Petchem and chemicals- leading
to incremental demand for LNG
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LNG PRICING
LNG pricing is most important in Sale PurchaseAgreements.
Success of contract largely revolves around thenegotiated LNG price for long term.
LNG price in Asia Pacific is largely linked with JCCcrude basket.
European buyers have LNG price linked with basket ofcrude products and gas.
New buyers prefer fixed price with minor variations
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EVOLVING LNG PRICING SCENARIO
In Ist Quarter of 2011, the short term prices which were hovering
at around 11% of crude have firmed up post-Japan Earthquakeand moving closer to long term prices at 14 -15%. of crude
The vessel charter rates have moved up from 60K /day in IstQuarter to around USD 90-100K/day.
Long term FOB prices for Asia-Pacific stable at 14-15% ofCrude.
Australian projects costs very high compared to Qatari projects -supported by high oil prices and slope.
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OTHER LNG INDEXATION FORMULAS
Floor & Ceiling - Two main LNG formulas adopted by Japanese areequations of straight line i.e. increase or decrease in LNG price isproportional to increase or decrease in Crude Oil or JCC Price.
LNG Sellers were concerned about very low LNG price and LNG Buyerswere concerned about very high LNG price. To alleviate their concern,
the concept of floor & ceiling was developed. LNG Price would remainsstatic below specified (floor price) and above specified (ceiling price).
S Curve This is another mechanism to take care of abnormal increaseor decrease in the LNG Price. In this concept the slope of the LNG priceequation is kept on lower side whenever, crude or JCC Price is reduced
or increased beyond specified levels.
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LNG CHOICEST FUEL OF FUTURE
With increasing gas demand supply gap with depleting indigenous suppliesIndia is undoubtedly emerging as a major LNG market of the future.
In Power generation , LNG fueled Gas Turbine yields a high thermal efficiency of55% as against 40% with Indian and 46% with imported coal.
LNG has highest calorific value in comparison with all other competing fuels andis the most Eco-friendly.
Since LNG is free from contaminants like Sulphur, Sodium and Vanadium, which
generate corrosive after combustion products, operating costs, are comparativelyone the lowest.
LNG being available in abundant quantities in the Mid East Countries, Malaysia,Indonesia and Western Australia, which involves fairly short shipping distances,
Additionally, LNG also provides several base stocks for the production ofNitrogenous and Phosphate fertilizers and petrochemical products which willreduce import dependency such as Ammonia, Methanol, MTBE, Formaldehydeand Methyl Methacrylate and Acetic Acid.
Considering various advantages of LNG, it make economic sense for theconsumers to pay even higher prices over other fuels
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THANKS