IndianOil to augment LNG trading business 4-5 times
New Delhi   27-Apr-2011


Mr. R. S. Butola, Chairman, IndianOil

Sensing opportunity in the country's falling natural gas output, state-owned refiner IndianOil (IOC) has decided to step up its LNG trading business four to five times in the next few years from the present 2.25 million tonne a year.

IOC chairman RS Butola told FE that the company is in the process of stepping up its LNG re-gassification capacity to 10 million tonne a year to cater to the fast growing gas market in the country. India now produces 169 million standard cubic metres a day (mscmd) of gas but the world's 13th largest gas consuming nation still has to import 35 mscmd to meet its requirements.

According to sources in Petronet LNG, India's gas demand will grow at 8% a year for the next ten years.

Besides, the declining output from the Reliance Industries-operated D6 block in the Krishna Godavari basin, that has already affected user industries like power and fertilizers, also opens ups fresh room for LNG imports. Last year, India imported 11,398 mscm of LNG, mostly from Qatar.

Butola said that IOC is trying to set up a new 5 million tonne a year LNG terminal at Ennore in Tamil Nadu.

This, along with another 2.5 million tonne capacity contemplated, would take the company's total LNG re-gassification capacity to 10 million tonne a year in the next couple of years.

“The problem is not of capacity, but the availability of gas. If we are able to source gas, the market is there,” he said.

IOC has 12.5% equity in Petronet LNG that gave the refiner a 30% marketing right on the gas it buys from Qatar-based RasGas. This 2.25 million tonne a year gas is sold to consumers in North and West India. As new pipelines get completed, the company hopes to cater to the South as well. India is now more than doubling its 6,000 km gas pipeline to provide enhanced connectivity in routes such as Dahej-Vajipur, Dadri-Nangal, Chainsa-Gurgaon-Jhajjar-Hissar, Kochi-Koottanad-Mangalore/Bangalore, Dabhol-Bangalore and Jagdishpur–Haldia.

According to industry sources, LNG is now available at about $7.5 per million metric British thermal unit (mmBtu) including taxes and transmission charges, while domestic gas is available in the range of $4.94 to $ 6.42 depending on the source. RIL's KG D6 gas, for example is available at $6.42 including other charges and taxes. Although there has been a global glut in natural gas, which led to a fall in spot prices, the recent crisis in Japan led to a steep rise in the price of spot prices, which currently rule above $10 per mmBtu. Gas tracks the trend in crude oil price in the long run. Consumer industries consider it risky to rely purely on spot purchases, which leads to an assured market for long term LNG supplies.