As far as gas is concerned, all investments are happening on LNG terminals.

B.C. Tripathi Chairman and Managing Director GAIL

in figures

Cost of the Jagdishpur-Haldia-Dhamra pipeline project:USD 2.21 million

Length of the Jagdishpur-Haldia-Dhamra pipeline project: 2,500 km

Percentage of LNG imports in India by GAIL: 70%

A trail of gas

December 1, 2016

TOGY talks to B. C. Tripathi, chairman and managing director of GAIL, about the company’s current operations, the rise of LNG in India and opportunities for investors interested in becoming players in the country's energy sectors. The NOC was established in 1984 to handle all areas of India's gas-related infrastructure, specifically pipelines and related facilities.

What are the major projects and operations that your company is has worked on in the last year?
In May 2016, we launched the Jagdishpur-Haldia-Dhamra gas pipeline project, a high priority for the government of India. It is a 2,500-km pipeline at a cost of INR 150 billion [USD 2.21 million].
The Cabinet Committee on Economic Affairs approved a capital grant of 40%, amounting to INR 51.8 billion [USD 753 million] over 5 years, for the joint Jagdishpur-Haldia and Bokaro-Dhamra pipeline project, which is being implemented by GAIL at a total capital outlay of INR 129 billion [USD 1.88 billion]. This will open up the gas reach to the eastern part of the country, to the states of Bihar, Jharkand, Odisha, West Bengal and eastern Uttar Pradesh.
Construction of the first phase has already started. By December 2018, the first phase will be ready, and by the same time in 2019, the second phase will also be ready. It is being executed in three phases.
Another important development is the commissioning of phase two of the Pata petrochemicals plant. With this, the production capacity of the plant has doubled to 810,000 tpy. Additionally, the commissioning and development of a petrochemicals complex in Assam by our subsidiary company, Brahmaputra Cracker and Polymer, was finalised in February 2016. The complex has a capacity of 285,000 tonnes of polymer per year.
Another important initiative is laying the infrastructure and supplying gas in the southern city of Bangalore, where we will begin to supply compressed natural gas [CNG] and piped natural gas for domestic as well as industrial and commercial usage.
The other initiative we have taken up is the LNG facility, the floating storage regasification unit [FSRU] in the state of Andhra Pradesh. The initiative has been taken up by a JV company called Andhra Pradesh Gas Distribution Company, of which GAIL shares 50% stakes with Andhra Pradesh Gas Infrastructure Corporation. The company has already started laying the grid. This will be the first FSRU in Andhra Pradesh. It should be ready by December 2017 or the beginning of 2018.

Has your company begun working in the upstream sector?
We are not directly an upstream player, but we have made a small beginning. There are two blocks in the Cambay Basin, one of which we operate and the other we partner with a sister company, Bharat Petro Resources, which is a subsidiary of Bharat Petroleum Corporation. In the next six months we will know what is happening there. Additionally, we are producing in our A-3 block in Myanmar with our South Korean partner, Daewoo.

What are the merits of importing LNG to India?
LNG import has increased. Today, in terms of India’s import basket, almost 45% is the import of oil and gas, and almost 70% of that is what GAIL is bringing. We have added almost 2.5 million tonnes last year from 1.5 million tonnes in year 2014-15 in terms of new supplies that are coming from short-term, long-term and spot contracts.
Our LNG imports from the USA will start in 2018. So far, major suppliers come from across the world, from the Middle East, and some volume from spot contracts from the USA. LNG is coming from various portfolio players, BP, Shell, BG and SOCAR, among others. On the LNG side, we have our subsidiary called GAIL Global Singapore, which is handling this job and sourcing major cargoes from there.

How has GAIL been catering to the growing gas demand coming from fertilisers and power sectors?
The other important initiative we are involved in is the pooling of gas for the fertiliser and power sectors at a uniform price. Nearly 2 million tonnes of LNG is being sourced on average to power fertiliser plants. We are the pool operator in both of these cases. The old power plants, which were shut down, are running at least 30-40% capacity.

Do you expect the demand for natural gas to increase in India?

With the current pricing, we expect demand to increase. Recently, the government of India has taken a decision to set up four new gas-based fertiliser plants, three of which are in the eastern part of the country where we are laying the big pipeline the Jagdishpur-Haldia-Dhamra gas pipeline.
The fertiliser plants in central and eastern India are in the planning stages. They will be ready by 2019, and will be needing additional gas. Major expansion right now is focused on handling domestic demand to houses and the transport sector.
Additionally, to help with the pollution problem in major metropolitan cities like New Delhi, the CNG network is being expanded in a large way. Recently, Indraprastha Gas, our JV company, has expanded its capacity by almost 30% by putting an additional 90 CNG stations up in a matter of four to five months.
In the same fashion, we are trying to expand CNG beyond the municipal limits of the cities, going towards highways and other new cities. The regulatory board is authorising around 10-15 new cities and towns that will have gas infrastructure. They will need additional gas, so we will make sure that our gas pipelines are sufficient to meet their demand. This will be another area where demand for gas will grow.
Especially in the commercial sector in southern India in the city of Bangalore, there is a huge commercial demand. We have already started supplying gas to our customers, the infrastructure is already being laid.
In the power sector, if renewable power demand in the sector grows, especially in solar, you will need complementary power from gas-based power plants, especially at night. Given that the GDP of India is growing at 7% per year, there will be more demand for energy and this will come either from coal or from gas.

 

What kinds of investments are being put towards the LNG market in India?
As far as gas is concerned, all investments are happening on LNG terminals. Three more LNG terminals are being built on the western coast right now. The Dabhol LNG facility, where GAIL is the operator, imported almost 25 cargoes last year, around 1.5 million tpy, but we do not have the breakwater. Once the breakwater is ready in the next two years, this will further grow our current capacity of 5 million tpy to 7.5 million tpy or 10 million tpy.
Right now, we are focused on our LNG facility at Kochi, where the pipeline laying activity is going to start post-monsoon. On the eastern coast, there are three LNG terminals that are being planned. One is the Ennore LNG Terminal, one in Kakinada and one in Dhamra, a JV between GAIL and Adani Group. There will be three terminals on the eastern coast and seven on the western coast, which will be sufficient to bring in supplies.
The question then becomes about about pipelines. The Jagdishpur-Haldia-Dhamra will be functional by 2019, and will be sufficient to transport the gas out of Dhamra. The Kakinada East Coast LNG terminal is already connected to the pipeline. Further pipeline is being expanded by Andhra Pradesh for the LNG facility there. Indian Oil Corporation is also laying pipeline there in order to connect to our grid, and with that, we will have an integrated network from east, west and south to bring in more volume. There is definitely possibility for international investors to participate in these.

Where do you see further investment opportunities for international players?

Besides the new LNG facilities, the new city gas and town gas infrastructure contracts, which are going to be offered under the new bidding round, are another option. We are also going to come out with an initial public offering for our JV company, MGL [Mahanagar Gas], in Mumbai next month and there is possibility to participate there.
We are now talking about having more trading activity in terms of rising LNG volume coming in short-term and mid-term cargoes. There are opportunities there for international companies to be a major partner and supplier. Additionally, GAIL will soon be coming out with new LNG carrier short-term requirements, which is a possibility for LNG shipowners to supply LNG ships.

What can the government do to boost domestic E&P to decrease import dependency?

The government has already come out with a new policy called HELP [Hydrocarbon Exploration and Licensing Policy]. This is definitely giving more comfort to upstream players. The market driven price, which they have agreed on in specialised and difficult geographies such as deepwater and high-pressure, high-temperature areas, will definitely help.
The question is whether this will be sufficient to meet growing demand. It has to be active on both sides. Domestic E&P activity needs to be boosted, but also import need to grow since the demand for energy is growing rapidly.

How do you see the LPG market growing in India?
It is the long-term vision of the government of India to provide a large number of domestic LPG cylinders, especially for residential consumers. This will be a major challenge, and for that our sister company is already working on expanding the LPG network.
This will require more import of LPG, especially in the cities like Delhi, Bangalore and Bombay, where piped gas will be supplied and LPG will be replaced and go to the rural part of the country where infrastructure cannot reach. This will be an integrated approach to giving LPG connection to rural people. We want to bring LPG to 75% of the population.

What kind of fluctuations have you noticed in the Asian premium for LNG?
With the current low prices, the Asian premium has been reduced. Logistically, it will be a different ball game altogether. The LNG from the Middle East will likely to flow to India. From Australia, it will likely to flow to China and the Far East. From the USA, it will likely to flow to Europe and Latin America. Those are the three major centres where it will happen.
Price balancing is taking place between the East and the West, but it has not seen a prominent premium. There will be a premium, but the gap is narrowing. The premium that was talked about two years back is less discussed today because global prices have softened.
With the Iranian sanctions being lifted, Iranian supplies will be ramped up, but there is an element of uncertainty, especially in the Middle East, about whether their supplies will remain in terms of the current demand.
In Nigeria, supplies are being blocked. China’s growth is slowing down. People are waiting to see how fast they will come back, if they do at all. These are the issues that are affecting the overall balance of energy. Based on that, the premium will be varied.

How does GAIL keep pace with new technology?
Recently, we have tried to convert GAIL into a smart utility. There are many digital initiatives being undertaken. For example, we are investing in digital technology to increase the safety and security of our pipelines. To secure our vast network, we started to deploy drones across the Hazira-Vijaipur-Jagdishpur pipeline. Monitoring, securing and detecting irregularities in the 13,000 km of gas pipelines remains a major challenge, which can be overcome through investment.
GAIL has collaborated with ISRO [Indian Space Research Organisation] to utilise satellite imagery for the purpose of pipeline RoU [right of use] monitoring. This involved mapping of GIS [geographic co-ordination system] co-ordinates and development of change-detection software. The pilot project is being carried out over 610 kilometres of the Dahej-Vijaipur pipeline. A Bhuvan-GAIL portal – bhuvan means earth in Sanskrit – was launched in October 2015 for carrying out the RoU surveillance.

What are your strategies to emerge as an integrated company?
At this moment in time, we want to fulfil the larger vision of the Indian government to take the country into a gas-based economy. To expand infrastructure and try to increase the reach of gas in the country is our first goal. Our second goal is to increase LNG import through our Singapore unit along the gas value chain.
We want to expand into gas retailing, especially in the domestic transport and commercial sectors. We are already there in the big cities. We are trying to further increase the infrastructure so that the piped supplies are available to houses and clean fuel for transport is available in cities as well as on highways.
In terms of our long-term vision, we want to figure out how to bring value along the overall value chain, from LNG, domestic sourcing, regasification, transportation, marketing and retailing to advanced technology.

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