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
