LNG ECONOMICS
Suresh Mathur October 21, 2011
LIQUEFIED NATURAL GAS (LNG) o
LNG is a natural gas cooled to -162°C
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
LNG - A SAFE OPTION
PROJECTED DEMAND FOR GAS Gas Demand (MMSCMD) 250.00 200.00
150.00 100.00 50.00 -
2009-10
2010-11
Power
Fertilizer
2010-11
2011-12 City Gas
2011-12
2012-13
2013-14
Petchem-Refinery
2012-13
2014-15
Sponge Iron
2013-14
2014-15
Basis Units planned
Power
87.71
149.11
185.52
212.73
243.34
Fertilizer
49.39
57.48
68.08
68.08
68.08
City Gas
13.70
17.53
22.44
28.72
36.76
Petchem-Refinery
24.44
25.42
26.43
27.49
28.59
3.71
3.82
3.93
4.05
4.17
178.94
253.36
306.41
341.08
380.95
Sponge Iron Total
Source: Mercados Analysis.
Units planned Trend Trend
Trend
GAS PRICES IN INDIA
PRODUCER
LAND FALL PRICE
MARKETING MARGIN
US$/MMBTU (US$/MMBTU)
CENTRAL SALES TAX
TRANSMISSION CHARGES
2% (US$)
US$/ MMBTU
SERVICE TAX
TOTAL PRICE
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
LARGE DEMAND BUT SENSITIVE TO PRICE Gas demand and supply, 2015 Mmscmd, at customer gate prices
388 276
59 171 25
19 40
230
46
185
146
Sectors with demand
▪ ▪
Industries CNG transport
203 126
185
1 2010 year Price of $16- Low end 17/ mmbtu consumption
35
91
45
77
311
185
2
185
3
4
Price of $13- Medium 14/ mmbtu
Price of $11- High 12/ mmbtu
Price of $810 mmbtu
▪ ▪ ▪
▪
▪
Refineries Industries Power cogen
Peaking power plants
▪
Potential demand, 2015
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%)
Gas
20162, (11%)
Oil
99503, (55%)
38206, (21%)
Hydro
Renewabl e
1199.75, (1%)
17706, (10%)
Nuclear
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
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, India’s 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
