The Hindu Business Line : Shipping Ministry steers for an India-owned LNG fleet

With LNG imports set to increase dramatically in the next few years, Indian ship-owners are realising the need to swiftly build up a fleet of LNG carrying vessels.

DESPITE some delays, the Indian shipping industry appears to be finally gearing up to develop an LNG (liquefied natural gas) fleet. With India emerging as a major importer of the gas, even the Ministry of Shipping has asked Indian ship-owners in no uncertain terms to take the initiative to develop an LNG fleet.

It is estimated that by 2012 India's LNG imports will almost equal Japan's current LNG imports of 60 million tonnes per annum. And to transport this quantit, the country will need about 25 LNG vessels by 2012 and 34 by 2025.

Indian ship-owners are realising the need to build up an LNG fleet. "Japan transported about 43 per cent of its total LNG import of 59.1 million tonnes in 2003 on Japanese owned and controlled ships. Similarly, Korea transported about 61 per cent of its LNG imports of 19.3 million tonnes during that period on Korean controlled ships. In the combined import of Japan and Korea, third party owned ships participation was only 8.3 per cent," points out the Indian National Shipowners Association (INSA) President, Mr Yudhishthir Khatau.

Though the first commercial LNG movement from Algeria to the UK took place in 1964, India started importing this fuel only from 2004. Today, Indonesia, Algeria, Malaysia and Qatar have emerged as the major LNG exporting countries, and Japan and Korea the big importers.

While 176 LNG ships now transport the fuel from various sources across the world, the global fleet will expand by another 111 vessels in the next four years. "Clearly, the trend is towards larger cargo carrying capacity for economies of scale, less energy consumption, new fuel-efficient propulsion systems and declining ship costs," said Mr Khatau, managing director, Varun Shipping, at a presentation at the recent International Maritime Expo in Mumbai. In the Indian context, the country has two LNG vessels of 1.38 lakh cubic metre capacity, which are owned by SCI and flagged at Malta.

The first LNG import terminal was set up at Dahej by Petronet with a five-million-tonne capacity, and was followed by a second terminal at Hazira, with 2.5 million tonne capacity.

It is estimated that India's requirement of natural gas, as per the Hydrocarbon Vision, will balloon to 313 million metric standard cubic metres per day (MMSCMD) by 2012 and 391 MMSCMD by 2025, while the estimated domestic gas availability will be 90 MMSCMD by 2025.

In other words, the estimated natural gas deficit to be met by imports will rise to 223 MMSCMD by 2012 and 301 MMSCMD by 2025.

In terms of tonnage, India is likely to import 62 million tonnes by 2012 (Japan's present import level) and 84 million tones by 2025. "To handle this quantity of imports, India will require 25 LNG vessels by 2012 and 34 vessels by 2025, assuming that one vessel can transport 2.5 million tones per annum," according to Mr Khatau.

Understandably, this kind of LNG fleet development will mean significant value addition to the economy. According to a recent study by TERI, on an average, the value added by the shipping industry to the economy per unit of Gross Registered Tonnage (GRT) acquired is Rs 2,211.

This would mean that if India acquires an LNG fleet of 25 vessels by 2012 there would be a value addition to the economy of Rs 519.60 crore (assuming that one LNG ship is 1,38,000 or 94,000 GRT). Similarly, an LNG fleet of 34 ships would mean a value addition of Rs 704.6 crore to the economy.

The development of an Indian-flagged LNG fleet can also have a multiplier effect on the country's tonnage. It has been estimated that the total profit of a typical three-year-old LNG vessel at the current pricing structure for the remaining 27 years (assuming a vessel's economic life is 30 years) will be in the region of $281.3 million.

As per the Tonnage Tax Reserve Clause, shipping companies will have to earmark 20 per cent of these profits for the fund meant for ship acquisition. Thus, 20 per cent of the profit on an LNG vessel for 27 years will amount to about $56.3 million, or $16.6 million over a period of eight years.

Considering this as 25 per cent equity, a 75 per cent debt of about $50 million can be raised. And this amount can be used to buy a second-hand VLCC (very large crude carrier). "This means every eight years, a VLCC of 1.5 lakh GRT can be added to the Indian fleet for every one LNG carrier owned under Indian flag," points out Mr Khatau.

Little wonder that the Ministry of Shipping is keen that the industry takes up quickly the already-delayed initiative to start building an LNG fleet of its own.

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