Billionaire Sees Profit as Gas Shortage Worsens: Corporate India
India’s JSW Group (SWH), controlled by the billionaire Jindal family, plans to spend 40 billion rupees ($736 million) to build its first liquefied gas terminal as sliding output at home spurs demand for imports of the fuel.
JSW Infrastructure Ltd., a closely held builder of ports in which Eton Park Capital Management LP owns 10 percent, is seeking government approval to set up the regasification unit in Jaigarh on the west coast, 356 kilometers (211 miles) south of Mumbai, B.V.J.K. Sharma, joint managing director at the company said in an interview. The facility, expected to be operational by December 2016, will be operated by a partner, he said.
JSW is joining Oil & Natural Gas Corp. (ONGC), India’s biggest energy explorer, and Indian Oil Corp., the nation’s largest refiner, to announce plans for such terminals as demand surges for gas used by power plants and fertilizer makers. Domestic output in Asia’s second-biggest fossil fuel consumer, has declined every month since November 2010 as the biggest field operated by billionaire Mukesh Ambani’s Reliance Industries Ltd. (RIL) yields less, making the case for higher imports to stoke growth.
“Considering the kind of energy requirement the country will have, which is very high, this is going to happen all over India,” Sharma said in the interview. “We are in the process of environmental clearance after which we will build it.”
India’s gas demand is projected to double to 2.4 quadrillion British thermal units by 2020, from 1.2 quadrillion Btu in 2012, according to U.S. Energy Information Administration data. The infrastructure to handle imports will be crucial to help revive the $1.8 trillion economy, No. 3 in Asia, from its slowest pace of growth in a decade.
Natural gas production in India declined 14 percent to 37.5 billion cubic meters in the 11 months ended Feb. 28, according to oil ministry data. The fall in output, combined with a coal shortage worsened by mining curbs to protect the environment, is threatening Prime Minister Manmohan Singh’s plans to boost electricity generation.
Rising costs of imported coal due to increase in levies in Indonesia, small size of renewable energy projects and falling domestic natural gas production continue to throw fuel sourcing challenge for centralized power generation given the consumer tariffs, said Sandeep Kumar Mohanty, senior consultant at PriceWaterhouseCoopers in New Delhi.
“LNG, although not cheap, will emerge as mid-term option to fulfill the growing needs of the country of fuel for chemicals and petrochemicals industry, and feed stock for fertilizer sector,” Mohanty said. “A number of developed countries like South Korea, Japan, U.K., France, Italy, Taiwan and Spain import significant quantum of gas or LNG to meet their growing needs.”
A peak shortfall of 9 percent in electricity supplies leads to blackouts that shave about 1.2 percentage points off economic growth, according to government estimates. About 13,000 megawatts of gas-based capacity is under construction at various stages, for which fuel supply needs to be secured, according to a report by the nation’s Planning Commission, which assesses and allocates resources.
“Availability of gas for power generation is a big issue which needs to be addressed,” according to the Commission. ‘If gas availability to projects already under construction is not ensured, it may become stranded assets and should be avoided.”
Reliance is battling to reverse a three-year slump at Krishna-Godavari gas basin and is spending about $1 million a day with partner BP Plc to look for new reserves more than a mile below its biggest field, a person with direct knowledge of the matter said this month. The two companies plan to spend more than $5 billion in five years to develop discovered gas deposits in the KG-D6 block off India’s east coast.
India’s natural gas output fell 20 percent last month from last year, according to a government statement on the Press Information Bureau website.
A group led by ONGC on March 19 signed an agreement with Mangalore Port Trust to build a LNG import terminal in the western coastal city in Karnataka state. The facility, which will process inbound shipments for local use, will have a capacity of as much as 3 million metric tons a year and can be expanded to 5 million tons.
Indian Oil’s plant at Ennore in the east coast will start in 2016 with a capacity of 5 million tons and expand to 10 million tons in 2022, Aditya Singhal, manager of business development, said March 7.
“The viability of all the planned LNG import terminals in India will depend on the price at which gas is available,” said Gagan Dixit, a Mumbai-based analyst with Quant Broking Pvt.
Power and fertilizer companies, which use more than 60 percent of gas, can’t afford to pay more than $12 per million British thermal units because the retail prices of electricity and urea are controlled by the government, Dixit said.
“All these LNG terminals can be built but developers may have trouble ensuring long-term demand,” Dixit said.
Japan paid $16.32 per million Btu for LNG imported in January, according to data compiled by Bloomberg. Imports last year were at an average $16.70 per million Btu.
India has three operational gas import terminals operated by Petronet LNG Ltd. (PLNG), Royal Dutch Shell Plc and Total SA. and GAIL India Ltd., all on the western coast. They have a total capacity of 18.6 million tons a year. Petronet is scheduled to start another terminal with 5 million tons capacity this year at Kochi in the southern state of Kerala.
The nation’s LNG receiving capacity will reach 71.5 million tons by 2022, Indian Oil’s Singhal said. India will become the third-biggest LNG importer by 2025, behind Japan and China, BG Group Plc Chief Executive Officer Chris Finlayson said March 20.
Ambiguity over supply and pricing of natural gas, the main feedstock used in producing urea, a fertilizer controlled by the government, have deterred new investments in the sector for more than 10 years, leading to an increase in imports and state subsidies.
A new policy assuring urea units a profit margin of 12 percent to 20 percent may prompt Aditya Birla Nuvo Ltd., Tata Chemicals Ltd. and rivals to invest $9 billion to increase nation’s urea capacity by almost 50 percent. Supply of gas will be key in ensuring spending in the fertilizer industry, according to a separate Planning Commission report.
JSW Infrastructure’s Jaigarh port that started operations in August 2009, aims to handle about 100 million tons of cargo including gas, thermal and metallurgical coal, bauxite, iron ore and fertilizer by 2020 up from about 8 million tons this year, Sharma said. The company, led by Sajjan Jindal, aims to bring large-capacity capesize vessels that would bring economies of scale, he said.
Sharma declined to elaborate on financing of the liquefied natural gas terminal near the port.
“There is an increased focus on creating infrastructure, which will need us to import energy including gas,” Sharma said.
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