The Hindu Business Line : `Uncertainties over Kochi LNG terminal a cause for concern'

THOUGH Petronet LNG Ltd (PLL) has been reiterating that the proposed terminal here would be taken up as per schedule, some of the technocrats here have expressed concern over the delay in finalising SPA with suppliers of LNG.

"We are all concerned at the uncertainty prevailing in the matter of the start of zero date for construction of the Kochi terminal," said Mr M.P.S. Nair, former Managing Director of Travancore Cochin Chemicals and ex-Chairman, Institution of Engineers India (IEI) Cochin.

According to him, among the several proposals to build infrastructure in the State the construction of the Kochi LNG terminal is the most important. This is because it will bring in a sweeping change to the life of the people in the State by providing access to an energy resource at one-third the price they are paying.

The Liquefied Natural Gas (LNG) terminal at PuthuVypeen in Kochi was proposed in 1998 by PLL, a joint venture of major national oil companies (IOC, BPCL, GAIL, HPCL) and foreign partners (Gaz de France, Ras Gas.

Due to several reasons this has been delayed ever since the LDF Govt initiated the proposal and KSIDC was identified as the nodal agency to work with GAIL and Petronet to promote and expedite the installation of the LNG terminal.

The Dahej (Gujarat) LNG terminal proposed along with Kochi became operative two years ago and had its capacity doubled to 5 million tonnes per annum (MMTPA).

RLNG is now available from PLL Dahej terminal through GAIL pipelines at $4.3 per MMBtu to power plants, fertiliser producers, sponge iron units etc. Originally, the LNG supply for the Kochi terminal was contracted till 2008 to Ras Gas, Qatar.

It is understood that due to the long delay in starting construction of the Kochi project, this has been re-allocated to Dahej where the capacity has already been doubled and gas supply from Iran was earmarked for Kochi terminal.

The India Iran gas deal got into trouble on account of the position taken by the country at the recent International Atomic Energy Agency (IAEA) board meeting.

Also, uncertainty prevails over Iran getting an appropriate technology for liquifying natural gas consequent to the opposition from US. This technology is available only with US (GE), France (Air Liquide) and Germany (Linde) all of which has backed out following the US stand to Iran. Now the Iranians are discussing technology from Total of France and also exploring its availability from Kazakistan/Ukrine.

Thus, availability of LNG to Kochi from Iran is almost ruled out. Now, the Ministry of Petroleum and Natural gas (MoPNG) is scouting for LNG from Australia for the Kochi terminal. It is still not certain with regard to availability, pricing and supply period and other terms all of which PLL hope to finalise during next month.

If long-term liquid contracts are difficult the next option is to go for spot purchase. The ruling spot prices are in the range of $10-12 per MMBtu which when re-gassified and delivered would be around $14 per MMBtu thereby considerably eroding its major advantage as a substitute fuel and feedstock to naphtha and fuel oil. Spot LNG prices around the globe have now more than doubled since last year.

This is why the recently commissioned 2.5 MMTPA Shell LNG terminal at Hazira, built at an investment of $600 million which bought LNG from its own consortium was, closed down and remains so immediately after the receipt of the third consignment cargo of LNG.

RLNG from Shell was outpriced by GAIL selling gas through HBJ pipeline at $3.6 per MMBtu and Petronet from Dahej at $4.3 per MMBtu.

The Travancore Cochin Chemicals Managing Director said, the success of implementation of the Cochin LNG terminal therefore heavily depends on MoPNG's ability to get a linkage of long-term contract for LNG and Iran still remains the best option.