Imported LNG cost to double  

Increasing demand for liquefied natural gas (LNG) is likely to push up the import cost for the country. Gas trade volumes have witnessed strong growth in the past few years and the demand is on the rise.

Considering that there are limited supply capacities available in the world, the cost of LNG imports at the Indian shore will range between $5.0 and $5.5 per mmbtu. This translates into a delivered cost of $6.5-7.0 per mmbtu to Indian domestic consumers, including the cost of regasification, transportation, taxes and marketing margin.

"This is nearly double the price at which Petronet LNG?s gas is being sold today," said Nagarajan Narasimhan, head, Crisil Research. The waning APM gas volumes would set the stage for differential pricing structure to emerge in India. Crisil Research expects the average delivered price for non-APM domestic gas (mostly from KG basin) to range between $5.0 and $5.5 per mmbtu.

Currently, nearly 25% of the world?s gas trade is in the form of LNG, with the balance being transported through pipelines. Crisil Research believes regional trade imbalances will result in a higher contribution of LNG to gas consumed in the world by 2010, at around 12% as compared to the current 6%. In a scenario like this, we believe that a global gas market will develop in the long term, where gas prices would be determined by market forces unlike today where it is primarily linked to alternative fuel prices.

Demand-supply mismatch in the global LNG market will continue even in 2010. Based on projects announced (excluding speculative capacities), CRISIL Research estimates that supplies at 265 mtpa (assuming an 85% capacity utilisation level) would just be able to match the demand of 246 mtpa in 2010. "LNG prices would reflect this tight supply situation. However, if some of the speculative projects see the light of day, they would have a significant impact on LNG pricing," he added.

Given the tight supply situation in the global LNG market in the next 5 years, India?s LNG import options are limited to Qatar, Algeria and Russia. Crisil Research expects LNG to contribute nearly 30% of the total gas demand in India by 2010-11 as compared to only 11% in 2005-06.

Source: The Financial Express, Mumbai, August 23, 2006
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