ONGC split over booking LNG at Swan terminal

ONGC split over booking LNG at Swan terminal

The ongc Board is divided on whether the oil and gas explorer should book capacities with Swan Energy’s proposed 5-million-tonne-per-annum (mtpa) terminal at Jafrabad in Gujarat to import liquified natural gas (LNG).

The matter was discussed at more than two board meetings, but a consensus was not reached, two sources familiar with the development told FE. The maharatna’s Board, one of the sources said, has raised two key issues. first, Swan’s LNG terminal is “still on air” — the construction has not started, neither has the project been completely financed. Second, ONGC also holds 12.5% in Petronet LNG, which has two operational regasification terminals at Dahej (Gujarat) and Kochi (Kerala).

“There was an in-principle approval from the ONGC board to foray into the gas business previously. However, booking capacity now comes at a risk. Consumption of LNG is not high here because it is expensive than domestic gas. An internal committee would look into several risk issues such as the demand and supply scenario in India and, then, a final decision would be taken,” said a board official requesting anonymity.

Mumbai-based Swan Energy is in talks with several players,  such as IOC, BPCL and GSPC, to book 1-1.5 mtpa capacity at the proposed terminal at Jafrabad on a tolling basis, Nikhil V Merchant, managing director of Swan Energy, had earlier told FE.

The ONGC board also discussed whether it can wait for some time before taking the final call. “The LNG terminal takes at least three years to set up. So, the option is to keep a close watch and book the capacity closer to commissioning of the terminal,” another source told FE.

If Swan Energy could rent out the entire capacity, it will boost its business model, which will result in banks and financial institutes willing to lend for the LNG terminal. The Jafrabad terminal is likely to cost about Rs 5,500 crore. Nearly 70% of the cost would be raised through debt.

Government-owned companies —ONGC, BPCL and IOC — hold 12.5% each in Petronet LNG. While Petronet’s  Dahej terminal has a nominal capacity of 10 mtpa, Kochi terminal has a capacity of 5 mtpa. The company is in the process of building a third terminal at Gangavaram in Andhra Pradesh.

FE had earlier reported that industry watchers are wary of the fact that despite being stakeholders in Petronet (which is into the business of marketing LNG), ONGC, BPCL and IOC are considering to book capacity at Swan Energy’s upcoming terminal. In addition, marketing and trading of gas is not the core business of ONGC. Besides, the government wants its companies to focus on their core businesses rather than unplanned diversification.

On December 16, 2013, Swan Energy informed stock exchanges that it has received environmental clearance from the Centre for setting up a floating storage re-gassification unit (FSRU) LNG import terminal near Pipavav. Construction is expected to begin later in 2015 and the project is likely to be operational by 2018.

In 2013-14, India consumed 41.11 mmscmd of LNG. This was 33.93% of its total natural gas consumption. LNG consumption in India has increased from 25.67% in FY12 to 29.84% in FY13 and to 33.93% in FY14. However, the big consumers, such as power and fertiliser plants, have constraints in using expensive imported gas as their end-product pricing is not free.

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