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    LNG Economics

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    LNG provides a safe and economical fuel option for India to meet its growing demand across key sectors like power, fertilizer, transportation and industry. India's LNG import capacity is currently around 13.5 MMTPA but demand is projected to grow substantially in coming years across sectors. LNG can play a key role in providing peaking power and complementing domestic gas supplies for base load power generation. Pricing remains a challenge but integrated LNG terminals and targeting of niche industrial markets can help mitigate high prices. LNG is emerging as the fuel of choice to meet India's energy needs due to its abundant global supply and various economic and environmental advantages over other fuels.

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    LNG Economics

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    Cal
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    LNG provides a safe and economical fuel option for India to meet its growing demand across key sectors like power, fertilizer, transportation and industry. India's LNG import capacity is currently around 13.5 MMTPA but demand is projected to grow substantially in coming years across sectors. LNG can play a key role in providing peaking power and complementing domestic gas supplies for base load power generation. Pricing remains a challenge but integrated LNG terminals and targeting of niche industrial markets can help mitigate high prices. LNG is emerging as the fuel of choice to meet India's energy needs due to its abundant global supply and various economic and environmental advantages over other fuels.

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    LNG provides a safe and economical fuel option for India to meet its growing demand across key sectors like power, fertilizer, transportation and industry. India's LNG import capacity is currently around 13.5 MMTPA but demand is projected to grow substantially in coming years across sectors. LNG can play a key role in providing peaking power and complementing domestic gas supplies for base load power generation. Pricing remains a challenge but integrated LNG terminals and targeting of niche industrial markets can help mitigate high prices. LNG is emerging as the fuel of choice to meet India's energy needs due to its abundant global supply and various economic and environmental advantages over other fuels.

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    1K views19 pages

    LNG Economics

    Uploaded by

    Cal
    LNG provides a safe and economical fuel option for India to meet its growing demand across key sectors like power, fertilizer, transportation and industry. India's LNG import capacity is currently around 13.5 MMTPA but demand is projected to grow substantially in coming years across sectors. LNG can play a key role in providing peaking power and complementing domestic gas supplies for base load power generation. Pricing remains a challenge but integrated LNG terminals and targeting of niche industrial markets can help mitigate high prices. LNG is emerging as the fuel of choice to meet India's energy needs due to its abundant global supply and various economic and environmental advantages over other fuels.

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    of 19

    LNG ECONOMICS

    Suresh Mathur October 21, 2011

    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
    LNG Naphtha

    6,000
    11,500 11,200

    0.5 - 1.2
    0.1 0.15

    Diesel Fuel Oil

    10,800 10.200

    < 1.0 2.0

    LNG - A SAFE OPTION

    PROJECTED DEMAND FOR GAS


    Gas Demand (MMSCMD)
    250.00 200.00

    150.00
    100.00 50.00 -

    2009-10
    Power

    2010-11
    Fertilizer

    2011-12
    City Gas

    2012-13
    Petchem-Refinery

    2013-14
    Sponge Iron

    2014-15

    2010-11

    2011-12

    2012-13

    2013-14

    2014-15

    Basis
    Units planned

    Power Fertilizer City Gas Petchem-Refinery Sponge Iron Total

    87.71 49.39 13.70 24.44 3.71 178.94


    Source: Mercados Analysis.

    149.11 57.48 17.53 25.42 3.82 253.36

    185.52 68.08 22.44 26.43 3.93 306.41

    212.73 68.08 28.72 27.49 4.05 341.08

    243.34 68.08 36.76 28.59 4.17 380.95

    Units planned Trend Trend

    Trend

    GAS PRICES IN INDIA

    PRODUCER

    LAND FALL PRICE

    MARKETING MARGIN

    CENTRAL SALES TAX

    TRANSMISSION CHARGES

    SERVICE TAX

    TOTAL PRICE

    US$/MMBTU (US$/MMBTU)
    ONGC/Oil APM (including Royalty) ONGC C Series (including Royalty) PMT Other JVS (Ravva)

    2% (US$)

    US$/ MMBTU

    10.30% (US$) (US$/MMBTU)

    4.20

    0.08

    0.60

    0.06

    4.94

    5.25
    5.65 3.50

    0.12
    0.11 0.11

    0.10
    0.12 0.07

    0.60
    0.60 0.60

    0.06
    0.06 0.06

    6.13
    6.54 4.34

    RLNG

    8.70
    4.20

    0.17
    0.14

    0.17
    0.09

    0.60
    1.80

    0.06
    0.19

    9.70
    6.42

    Reliance KG6

    However, presently Spot/ Shot Term RLNG Price at customer end is around US$17-18

    LARGE DEMAND BUT SENSITIVE TO PRICE


    Gas demand and supply, 2015 Mmscmd, at customer gate prices 311
    35 126 77 203

    388 276

    59 171 25 19 40

    230
    45

    46

    91

    146

    185

    185

    185

    185

    1
    2010 year Price of $16- Low end 17/ mmbtu consumption

    2
    Price of $13- Medium 14/ mmbtu

    3
    Price of $11- High 12/ mmbtu

    4
    Price of $810 mmbtu Potential demand, 2015

    Sectors with demand

    Industries CNG transport

    Refineries Industries Power cogen

    Peaking power plants

    Baseload power New fertilizer plants Imports

    Prices at Crude of $ 100/Bbl


    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 SOURCE: Indianpetro; DGH; Company annual reports; Expert interviews; McKinsey analysis

    Domestic supplies

    NATURAL GAS IN POWER SECTOR


    Power Generation Capacity of 181558 MW) Coal As on August, 2011 4780, (2%) 20162, (11%)
    Gas

    Between 2011-12 & 2012-13 an additional Gas based capacity addition expected to be around 12200 MW.
    Role of LNG in Power Sector: Complementing domestic gas usage In peaking and merchant Power

    Oil

    38206, (21%)

    99503, (55%)

    Hydro

    Renewabl e

    1199.75, (1%)

    17706, (10%)

    Nuclear

    AVERAGE ELECTRICITY PRICE TO CONSUMERS


    COUNTRY USD/KWH

    Japan France UK USA India China Brazil

    0.22-.0.30 0.17-0.20 0.23 -0.25 0.10-0.11 0.06-0.08 0.08-0.11 0.11-0.15

    Source : IEA & others

    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 .

    POWER COST WITH VARIOUS FUELS

    LNG UNIQUENESS OF INTEGRATED POWER PLANT


    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

    NATURAL GAS IN FERTILIZER SECTOR


    Demand

    Period

    BCM

    MMSCMD

    2011-12 2012-13

    21 25

    57 68

    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

    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

    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

    LNG PRICING
    LNG

    pricing is most important in Sale Purchase Agreements. Success of contract largely revolves around the negotiated LNG price for long term. LNG price in Asia Pacific is largely linked with JCC crude basket. European buyers have LNG price linked with basket of crude products and gas. New buyers prefer fixed price with minor variations

    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 Earthquake and moving closer to long term prices at 14 -15%. of crude
    The vessel charter rates have moved up from 60K /day in Ist Quarter to around USD 90-100K/day.

    Long term FOB prices for Asia-Pacific stable at 14-15% of Crude.


    Australian projects costs very high compared to Qatari projects supported by high oil prices and slope.

    OTHER LNG INDEXATION FORMULAS


    Floor & Ceiling - Two main LNG formulas adopted by Japanese are

    equations of straight line i.e. increase or decrease in LNG price is proportional to increase or decrease in Crude Oil or JCC Price.
    LNG Sellers were concerned about very low LNG price and LNG Buyers

    were concerned about very high LNG price. To alleviate their concern, the concept of floor & ceiling was developed. LNG Price would remains static below specified (floor price) and above specified (ceiling price).
    S Curve This is another mechanism to take care of abnormal increase

    or decrease in the LNG Price. In this concept the slope of the LNG price equation is kept on lower side whenever, crude or JCC Price is reduced or increased beyond specified levels.

    LNG CHOICEST FUEL OF FUTURE


    With increasing gas demand supply gap with depleting indigenous supplies

    India is undoubtedly emerging as a major LNG market of the future.


    In Power generation , LNG fueled Gas Turbine yields a high thermal efficiency of

    55% as against 40% with Indian and 46% with imported coal.
    LNG has highest calorific value in comparison with all other competing fuels and

    is the most Eco-friendly.


    Since LNG is free from contaminants like Sulphur, Sodium and Vanadium, which

    generate corrosive after combustion products, operating costs, are comparatively one 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 of

    Nitrogenous and Phosphate fertilizers and petrochemical products which will reduce import dependency such as Ammonia, Methanol, MTBE, Formaldehyde and Methyl Methacrylate and Acetic Acid. Considering various advantages of LNG, it make economic sense for the consumers to pay even higher prices over other fuels

    THANKS

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