"If price is reasonable, people will look for more gas".

Q&A: A K Balyan, MD & CEO, Petronet LNG

Petronet LNG Ltd, the market leader in LNG business, saw its profit double in the quarter ending December 2010, primarily due to highest-ever gas sales. In an interview with Ajay Modi and Jyoti Mukul, PLL Managing Director and Chief Executive Officer A K Balyan says that the scope of regassified gas is enormous despite the challenges of tying up customers for its Kochi terminal. Edited excerpts:

What is your outlook on natural gas demand?
The domestic gas demand has been projected to touch a level of 380-400 million standard cubic metres per day (mscmd) in four to five years from the present levels of 175-178 mscmd and supply of nearly 170 mscmd from both domestic and imported sources. The supply from the current and likely domestic sources is not expected to see a dramatic rise, thereby increasing the gap. In the next four to five years, a major domestic find is unlikely to start production and a transnational pipeline is also not possible.

How good is the gas infrastructure in the country and do you think there will be latent demand once infrastructure comes up?
Gas is clean, efficient and environment-friendly fuel. One area of concern is pipeline infrastructure which has improved but the country needs a more comprehensive network.

There is a delay in coming up of trunk pipelines. Do you think infrastructure should come up irrespective of gas supply?
If the country is looking to achieve certain level of growth, basic pipeline network has to be there, which the government should set up. We canít just wait for companies to set up pipelines since they are guided by commercial considerations.

In 2004, when you started business you found it difficult to tie up customers due to high price. Do you think that market has matured to pay a high price?
If price is reasonable, you will find everybody looking for more gas. Consumers will look for equivalent amount of heat value and then look for replacement value of fuel. There was a time when gas was offered to India at a cheaper price but we could not close those deals. For us, it is important to bring in large quantities at an affordable price.

When do you plan to commission the Kochi terminal?
So far, we have tied up less than 1.5 million tonne (mt) long-term contract with ExxonMobil from their share of Gorgon fields in Australia and supplies would start by end of 2014. Discussions are underway with Kerala State Industrial Corporation which had indicated well above 5 million tonne gas demand. Based on these projections, our board had approved project expansion from 2.5 to 5 mt. We are careful that expansion should not delay the project.

Since supply from Gorgon begins only in 2014-end, how will you manage the period between 2012-end till then?
For a minimum of two-and-a-half years, we will have some arrangement for gas supply. We are in discussion with several countries to source gas. We need to work out a short-term arrangement. However, we will go for long-term contracts because Indians are keen on long-term supply.

Even after increase in domestic gas price, cost of imported LNG remains higher. Isnít Petronet facing the challenge of not being able to sign more deals due to this?
Challenge lies in concluding an affordable price contract. US imports have gone down due to domestic supplies of non-conventional gas. Qatar has commissioned 77 mt capacity, which they are not able to operate fully because they are waiting to enter long-term contracts. There are also ongoing projects in Australia with huge capacities. Companies like RasGas and Qatar Gas are trying to hold on and are waiting for a fresh demand so that they can get better price. We have to engage and convince them that there is a gas requirement but price has to be aligned with fuel oil and diesel that imported gas will replace.

What is Petronetís business plan for the next two to three years?
One highlight is direct marketing of gas in areas not serviced by our off-takers. We are looking at marketing gas by tankers to areas that do not have a pipeline. We are going to the board with a proposal for power plant at Dahej. We will also examine a similar project for Kochi.

In five to seven yearsí time, we should double our volumes. We have expanded Dahej capacity from 7.5 to 10 mt. We are setting up a new jetty at Dahej. We might look at creating more storage capacity at Dahej. Kochi capacity is also being doubled.

Source: Ajay Modi & Jyoti Mukul / New Delhi
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