1. LNG and Power Sector Opportunities and Concerns
B. Pradeep
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2. KSEB Officers' Association
Background
LNG terminal being commissioned in Kochi
Initial capacity 2.5 mmtpa; ultimate capacity 5 mmtpa
Laying of Gas pipeline network in Kochi in final stages
Gas pipeline to Mangalore and Bangalore under execution
Gas pipeline to Kayamkulam planned
MoU between GAIL and KSIDC for City Gas distribution etc
GSA between Petronet and Exxon-Mobil for supply of 1.44 mmtpa from 2015; FOB price 14.5% * JCC
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3. Natural gas in power sector
Clean fuel
Lower Carbon footprint
Seen as “bridge fuel” until transformation to renewable energy is technically and commercially viable
Operational flexibility in responding to sudden changes in demand
Suitable as peaking station
suitable for integration with infirm renewable power
Scope for decentralised plants at load centers
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4. Opportunities in power sector
Proposals under various stages include
1200 MW project at Puthuvypeen
1050 MW project at Brahmapuram
1050 MW Kayamkulam expansion
1200 MW project at Cheemeni
Conversion of 350 MW Kayamkulam Stage I
Conversion of 165 MW BSES plant at Kochi
Total natural gas requirement for these projects will be around 25 MMSCMD or 6.25 mmtpa – higher than terminal capacity
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5. But, Some hard facts
Inadequate Long term tie-up for LNG supply to terminal
only for a fraction of the capacity (1.44 mmtpa against capacity of 5 mmtpa)
Price linked to crude oil price (Japanese Custom Cleared crude price)
Will commence only from 2015
LNG supply at spot prices
Price is volatile; presently floating between 12 – 17 US$ per mmbtu
Thus there is no firmness in quantum or price for the supply at Kochi terminal
The situation is entirely different from that at Dahej terminal (price stability ensured through floor & caps in pricing formula)
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6. Some hard facts Unfavorable commercial conditions
“Take or Pay” even when LNG becomes unaffordable due to flaring up of crude oil prices
The technical advantage of “operational flexibility” lost due to inflexible commercial conditions
Planning Commissions observations
By the import dependence of gas is expected to increase to 28.4% from 19% in
Unless the pricing issue is resolved, the scope of using LNG in the price sensitive power sector is remote
The high prices prevalent in LNG trade in Asia-Pacific region can potentially kill the goose that lays the golden eggs
Thus in the 12th plan capacity addition of 2539 MW only is planned for the country as a whole using Natural Gas & LNG, that too as peaking stations alone (instead of base load stations)
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7. Increase in Power Purchase cost
Power procurement cost has abnormally increased in Kerala in the backdrop of
abnormal increase in fuel cost (Naphtha, LSHS, Coal etc)
de-licensing of generation sector through Electricity Act, 2003
Imperfections in market
revision of operation norms by CERC for central sector stations and
No major hydro projects being commissioned
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Increase in Power Purchase cost of KSEB (Source: True up orders, ARR&ERC orders and ARR & ERC filings)
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9. Power purchase cost VS Revenue
Purchase cost is overtaking revenue from tariff
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10. LNG as replacement fuel
One of the reasons for the above situation is increase in cost of Naphtha power
Existing capacity of Naphtha stations
Kayamkulam – 350 MW, BSES – 165 MW; Total – 515 MW
Annual generation from these stations were restricted between Zero and 1200 MU against a potential of 3600 Mus
Conversion of fuel
Per unit cost will come down - from present Rs 11 to about Rs 7 per unit (considering crude price of 100 US$ per barrel); but is still higher than present average retail tariff – Rs 4.38 per unit
Thus, conversion to facilitate generation at current level could be beneficial, but any additional generation may be counter productive
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LNG for new plants
Energy demand in Kerala for is estimated as 22,117 MU, which is to be met by
KSEB stations – 6,837 MU; Central Generating stations – 10,236 MU; Small IPPs in Kerala MU; Traders - 3,628 MU; Kayamkulam + BSES - 1,220 MU
Total power purchase cost is estimated as Rs 7,083 Crores
The demand is expected to increase to 26,584 MU by and to 32,895 MU by
Additional energy required – 10,778 MU
Additional power purchase cost will be about Rs 9,200 crores if the additional power is met from new LNG plants (FC Rs VC Rs 7)
The revenue of KSEB for is estimated as Rs 8,000 cores only
Power purchase cost will increase by 130% (at current prices) to meet increase of 48% in power procurement quantum
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12. Impact of change in crude price
Kochi LNG price is directly linked to Crude price
Between 2003 and 2012 crude price has increased at 16% annually.
Between the increase was at 27% and between the increase is at 22%
LNG Projects considered are Puthuvypeen 1050 MW and Brahmapuram 350 MW alone
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Risk Mitigation
Clearly Kerala cannot absorb such costly power in huge quantum – reducing the quantum is important
LNG plants as peaking stations
Peak demand is estimated to become 6093 MW by
Additional capacity required to meet the peak demand is about 3000 MW; at a plf of 85% LNG plants will deliver about 22,000 MUs
Whereas the additional energy requirement is about 11,000 MUs only
If capacity to the tune of 1000 – 1500 MW is created or contracted for base load operation the energy demand could be more or less met
Such base load stations may be on Coal and balance energy and capacity may be met from LNG plants
This could limit the exposure on LNG to the tune of 2000 – 3000 MUs
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Risk Mitigation
Allocation of Domestic Natural Gas
Kerala not being endowed with any natural resources like Coal, Natural Gas etc and development of hydro projects is hampered due to environmental concerns has eligibility to get priority allocation of domestic natural gas, once gas pipeline infrastructure is in place
Due to price stability to certain extent, Kerala shall seek for domestic natural gas allocation for power projects on Swap basis
Gas price pooling
Pooling the price of LNG with domestic natural gas could bring down the cost as well as create some stability in price
Kerala shall seek gas price pooling to ensure utilisation of LNG facilities
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15. Gas prices in different markets
Domestic natural gas
APM gas to 5.25 US$ /mmbtu
Pre NELP fields – 3.5 to 5.73 US$ /mmbtu
NELP fields US$ /mmbtu
LNG imported in India
Qatar Gas (Dahej) - 9 US$/mmbtu
Other term contracts to 9.06 US$ /mmbtu
Spot LNG to 17 US$ /mmbtu
Gorgon gas (Kochi) - 16 US$ /mmbtu at current crude price
International prices
Henry Hub (US) - 3 to 4 US$ /mmbtu
NBP (UK and Europe) - 6 to 7 US$ /mmbtu
JCC based (Japan) - 14 to 15 US$ /mmbtu
Canada - 3 to 4 US$/ mmbtu
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16. Kochi Terminal landed in a disadvantageous position
The suppliers of Gas to be sensitised on the price factor
Globally the link between Crude price and Gas price is being broken (Dr C. Rengarajan Committee report 2012)
Our proposed power projects shall not be tied down with commercially unviable contracts for gas supply
But the highly urbanised Kerala context provides a great market for LNG as a substitute fuel through city gas distribution (domestic & commercial sectors) network, automotive fuel etc – piped gas
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17. KSEB Officers' Association
Looking forward
Gas based projects has a major role to play in our power supply landscape
LNG terminal is a game changer – connecting Kerala to the Natural gas market; ship route as well as pipe route
In view of the present commercially unfavorable contracts for supply of Gas, Kerala shall cautiously tap the market
The strategies may include
Seeking domestic natural gas allocation on swap basis
Seeking pooled prices for gas
Limiting exposure to LNG by going for peaking stations initially
Work along with GAIL/Petronet etc to tap North American market and other potential markets
Gradually move away from the crude price linkage
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18. KSEB Officers' Association
THANKS
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