Natural gas pricing is a big issue in our country: AK Balyan, MD & CEO, Petronet LNG

The new man at the helm of Petronet LNG wants to be a catalyst for change of the company, which is eager to grow beyond being just a toll regassifier. AK Balyan , managing director and chief executive officer, Petronet LNG, shared his views on how the company could transform itself over the next five to six years in an interview with ET Intelligence Group?s Ramkrishna Kashelkar. Excerpts.

It is hardly six months since you took over at Petronet. What was the first major task you took up after joining?

The first major exercise we took up at Petronet after I joined was conducting a SWOT (strengths, weaknesses, opportunities and threats) analysis involving all our employees. It sort of provoked each employee to analyse how far we have been able to achieve our objectives, where we are today and where do they see Petronet in the next five years.

Based on inputs from this brainstorming and collective thinking, we tried to come out with a new vision for the company and a strategy on how we should really go about to meet this. What has emerged is that PLL should not remain just a tolling company to import and regassify LNG. It should venture in some areas on its own, where we have strengths or can draw on our promoters? strengths and grow.

To achieve our vision and to position the company in a new business environment, we are now trying to work out the specific strategic goals we should set ourselves that can collectively help us meet our goal.

How do you plan to implement Petronet?s new strategy while addressing the domestic demand supply gap in natural gas?

We can capture the opportunity that exists within the country by bringing in more gas. Natural gas is a unique business, where if you increase supply, demand would grow. Since there are huge volumes required in the country, we are aiming at doubling our volumes in the next five to six years.

Besides, we are looking at the possibility of entering into direct marketing of natural gas in areas where there are no pipelines. During the past three years, we have gained a lot of experience in transporting LNG through tankers. We are trying to create small hubs with appropriate storage capacity, which we can supply through tankers. We now supply LNG up to 500 km distance from Dahej to different industrial areas.

And this is growing fast. So this will be an entry into direct marketing rather than staying just a tolling regassifier. In future, these small hubs could grow in nearby areas through small pipelines and even CNG stations could be set up. This kind of opportunity can be extended to various parts of the country. LNG can also be used directly in automobiles and other industrial uses. Since LNG is not stored under very high pressure, unlike CNG, it is safer to use and investments are not very high. You can actually carry much larger quantities of gas with LNG, which means less frequent refuelling.

Petronet has also talked about entering into power generation. What are your plans on this front?

LNG and power generation businesses actually go hand-in-hand. Being an LNG importer, we have some natural positives in the power generation. Firstly, we don?t have to pay any transportation charges or VAT, unlike other players, for the gas used in generating power. Since LNG is imported at sub-zero temperatures, we also have the benefit of cold energy, which adds 8-10% efficiency to power generation.

Considering all these, we can be a very competitive power producer in spite of the imported fuel. At Dahej, we have acquired 50 acres of land near our terminal and a detailed feasibility study is underway. We have also applied for environmental clearances and will be going for final approval from the board soon.

We are aiming for 1,200 megawatt in phases with a total capex of close to Rs 4,000 crore. The entire capacity is expected to come up within 36 months from the zero date. When fully commissioned, it will consume over 1.2 million tonne of LNG annually. Sourcing the gas for the power venture would not be an issue. Dahej terminal has been enhanced to 10 mtpa with only 7.5 mtpa firm supply. So we have 2.5 mtpa extra capacity. We are actively discussing with suppliers for filling this gap and I hope in the next couple of months, we will be able to tie up something for this.

What is the progress on your Kochi terminal?

The 2.5-mt Kochi LNG terminal is progressing fast and is already 60-65% complete. We are aiming for mechanical completion by the end of FY12. With prospects of gas becoming available in that area for the first time, a lot of new industrial activity has begun. Gail and us have done a lot of market study and the detailed analysis has justified doubling the terminal capacity to 5 mtpa. Our board has also approved this.

These exciting opportunities make us confident that we need to double our volumes over the next five to six years.

The domestic supply of natural gas is growing, which is cheaper to imported LNG. How do you view this scenario?

Natural gas pricing is a big issue in our country. We are perhaps the only country in the world, where a number of different prices are in vogue. This is not really a good situation for the country. We should have a narrow range in prices and marginal differences could be allowed based on transportation. This is the situation in most countries. I am happy that the government is actively considering a ?price pooling mechanism? to address this issue. For a country of our size, affordability of energy source is an important thing. From consumer?s aspect also, it is a good thinking to keep uniform approach to the gas prices. At the same time, I feel it is being practised to a certain extent.

The government?s decision to allocate only 60% gas requirement of a power plant from domestic sources and making them source the rest on their own is a different way of averaging out the natural gas prices. However, a more structured way should be set up. If that happens, the differential between the cost of domestic and imported gas would come down.

How will you be funding your projects? Would you need any equity partner for the power venture?

We are in a capital-intensive industry and need a chunk of investment to get going. So it is natural for us to leverage our balance sheet. We are maintaining the debt-equity ratio at around 1.3. The three major projects in front of us today are the Kochi terminal, then its expansion and the 1200 mw power plant.

We are also setting up a new jetty at Dahej, which will allow us to bring in bigger vessels lowering the turnaround time and improving operational efficiencies. This would also give us flexibility to operate at much higher capacity than the nameplate 10 mtpa. We are enhancing our throughput.

Our regassification charges are revised 5% up every year. So with higher charges, volumes, marketing of spot cargoes, I think we can meet our capex requirements for the Kochi terminal and its expansion. For the power project, we will need financing, but not in the form of equity.

It was reported sometime ago that pipeline constraint is putting a cap on your capacities. How is the scenario now?

Yes, the pipeline capacity remains a constraint. The first phase of expansion of DVPL is on track to finish in 2010, which will ease pressure for us. Another year or so down the line, the full expansion would commission when we will find a lot of improvement for PLNG.

We have been operating our plant at an average 7.5 mtpa. When PMT fields were down for a month or so and demand was high, we have operated even at 12 mtpa capacity. But for a sustainable ramp up, the pipeline constraint needs to be removed.

The country needs a much wider network of pipelines. This will be very good for gas suppliers. At Kochi also, Gail is working very fast to lay the pipelines connecting major customers before our plant comes up.

Source: 27 December, 2010
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