LNG

Natural gas is a colorless odorless liquid that burns cleaner and is used for heating, cooling and electricity apart from fertilizers and petrochemicals. The components of natural gas vary depending on the field, although regarded as a combustible fuel, NG in its natural occuring form is a complex hydrocarbon vapor which can be seperated by fractional distillation. The principal constituents on natural gas are as follows

C1 Methane, used for fueld and feedstock in power and fertilizer plants

C2 Ethane, Production of petrochemcials

C3 Proapne, Production of petrochemicals, LPG and industrial fuel

C4 Butane, Production of LPG

C5 Pentane and higher, prodcution of solvents

In India, the C3 and C4 fractions of natural gas are usually extracted in a Liquefied Petroleum Gas (LPG) extraction plant for making LPG. Typically, a 1:1 Propane-Butane mix is used for making LPG in India. After the extraction of the Propane and Butane streams (the process is called shrinkage of gas), the stream of gas (known as lean gas) is returned to the pipeline system.

However, at this point the calorific value of the gas is lower and could be as low as 8300 Kcal/ scm. The lean gas is rich in methane and accordingly used by fertilizer plants for producing ammonia from methane. While all fractions of the rich gas can be used by fertilizer and power plants, the value added to the C2, C3, C4, C5 and heavier fractions is greater when they are used for the production of LPG or when C2 and C3 is used for the production of petrochemicals

Natural gas may also contain moisture, hydrogen sulfide, carbon dioxide, nitrogen, helium, or other components that may be diluents and/ or contaminants. In any case, natural gas as produced is rarely suitable for pipeline transportation or commercial use. Natural gas in commercial distribution systems is composed almost entirely of methane and ethane, with moisture and other contaminants removed to very low concentrations. Although, internationally, there are no industry specifications for pipeline quality gas, each pipeline quality gas may impose other specifications parameters, depending on its system requirements.

Petronet LNG has tied up with quatar gas, for supply of additional 2.5mt of LNG at its Dahej terminal. I just wanted to understand what it means in terms of volumes of gas being transported. The conversion goes as follows

1 tonne of LNG = 2.17 metric cube of gas

2.5 million tonne of LNG =5425000 metric cube

Each carrier has a capaicty of 154800 per metric cube

which implies that to carry 2.5million tonnes the carrier has to take roughly 35 rounds.

The pricing of LNG is done as follows, japan is the major importer of LNG and hence the contracts are based on the pricing formula used by them for their contracts. The japnese LNG prices are based on the price of Japanese crude cocktail. Since India being a relatively undeveloped market, the contract that was negoitated was for a price of $2.53 based on the JCC price of $20/bbl, but from 1 Jan 2009, the price has been indexed to the actual JCC.

So the pricing works like this

JCC price : $20.bbl

FOB price of LNG: 2.53

Shipping charges:

Petronet LNG has contracted two ships of 138,000m3 for transport of LNG from quatar

Now 1tonne of LNG = 2.17m3 of LNG

Therefore 138,000m3 of LNG = 138000/2.17/10^6 mt of LNG = .063954 mmtpa

Now 1 mmtpa of LNG =50.9832tbtu (trillion btu)

so .063954mmtpa = .063954*50.9832*10^6 million btu

=3242377million btu

The charter rates for petronet LNG is $57900 per day and the route from quatar to india takes close to 15 days. Therfore the cost of 57900*12.5=$723750

hence the cost per mmtbu =723750/3242377 = 0.22/mmbtu

Port loading charges: .04/mmbtu

Transit insurance: zero

CIF price = 2.79/mmbtu

customs duty = 5.1% = 0.14/mmbtu

Regassifiacation charges: 0.57/mmbtu

Price ex-dahej :3.51

VAT@12.5% = 0.44/mmbtu

Markeing margin: .05/mmbtu

Pipeline tariff: 0.53/mmbtu

Service tax@10.3%=0.054/mmbtu

Regassification are the charges that are used by the company to cover for the debt service capabilities, fund O&m, income tax and provide returns to the equity investors with a provision to raise the charges by 5% every year. The company has port operation service contract with a singapore consortium. PLNG has signed offtake agreements with GAIL and IOC. GAIL has a diversified customer base with a large number of consumers spread across the glass, ceramics, chemicals, automotives, textiles, and steel industries, besides the power and fertilizer sectors—traditionally the largest consumers of natural gas in India. IOC has limited but high volume customers, with the company also consuming around 11% of its commitment under GSPC at its Koyali and Mathura refineries.The offtakers have been able to contract the gas with their customers only for a period of 10 years as opposed to their take or pay obligation of 25 years. Thus the offtaker faces the risk of non renewal of GSA beyond the contract period.

The joint payment service mechanism;

PLL and Ras gas have agreed upon a PSM, which envisages that the payments received from the offtakers would be divided into two accounts

· Fuel payment trust and retention account (FPTRA)

· Subaccount1: LNG charge account

· Subaccount2: Charter hire account

· PLL onshore trust and retention account (POTRA)

· Make statuary payments

· Meet o&M expenses

· Residual amount to be transferred to debt service account

· Residual cash would be available for appropriation.

With capacity utilisation of PLL’s plant being low in 2004-05, it could not absorb the high fixed costs of interest, depreciation and O&M, and posted a book loss. In 2005-06 however, as capacity utilisation improved, the company’s contribution, operating profit and net profit showed a significant improvement; this continues in the current fiscal. At its existing plant, PLL has a cushion to go up to an output of 6.3 MMTPA, considering its available regassification capacity (22.5 MMSCMD). To utilise its spare capacity, PLL has made its plant available on a tolling basis to offtakers for regassifying the LNG bought on the spot market. During the first quarter of 2006- 07, PLL handled one shipload of spot LNG, and subsequently, it has handled two more shiploads. The company earns regassification revenues of around Rs. 83.5 million for every shipload of spot LNG of volume 1,35,000 m3, which directly adds toThe company is in talks with Qatar, Oman, Egypt, Malaysia, Australia and Abu Dhabi in the United

Arab Emirates (UAE) for spot purchases its bottomline as the variable costs for tolling are negligible and the fixed costs are recovered through the existing regassification charges for 5mtpa

'The success in selling the entire stock of the first spot cargo bought by the company from Algeria has given us the confidence to go ahead with plans to purchase more spot cargoes of LNG,'company sources told IANS

Normally, countries inform one month in advance if any LNG cargo of three trillion British thermal unit (Btu), or equivalent of 80 million standard cubic metre (MMSCM) of natural gas, is likely to become available. On the basis of competitive bids, the spot cargo is sold.

West Coast: Qatar, Oman, Iran, Yemen
East Coast: Malaysia, Indonesia, Australia
Middle East is the preferred supply centre on the West Coast due to:

1. Large gas reserves
2. Transportation advantage
3. Existing markets
4. Pipeline and marketing infrastructure
5. Expansion potential

Producer prices payable to ONGC/Oil India Ltd (OIL) are fixed by the government, based on the principle of 15 per cent post tax return on capital employed.