By R. Sasankan
History has a strange way of repeating itself: the circumstances are
different, the particulars altered. But there is a common thread that
binds two disparate elements that appear to perpetuate a paradigm. It is
a tale of grandiose plans, hubris and colossal extravagance.
Let me illustrate this. Around mid-1980s, The Economic Times (where I
worked at that time) carried a major exclusive story. It was the
first-ever report on the 1400 km HBJ gas pipeline. The pipeline started
from Hazira on the west coast, traversed through Bijaipur and ended in
Jagdispur (HBJ) in the state of Uttar Pradesh. The cost was estimated at
Rs 1400 crore (Rs 14 billion).
The pipeline was planned mainly to transport gas from ONGC’s South
Bassein field in the Bombay offshore to six fertilizer plants that were
supposed to come up along the pipeline’s route. The construction
contract for the pipeline was awarded to a consortium headed by Spie
Capag of France which had outbid the then politically powerful Snam
Progetti of Italy in the international tender. V.P. Singh, the then
finance minister in the Rajiv Gandhi-led government, swiftly cleared the
file thereby ensuring that Snam could not use its clout to scuttle Spie
Capag’s chances of grabbing the contract. In fact, this episode soured
the relations between Rajiv Gandhi and V.P. Singh and would eventually
lead to their parting of ways.
The pipeline was completed in time by the contractor but it remained
totally unutilised for close to five years as the fertilizer plants that
were supposed to consume the gas had not been established. If the
pipeline had been owned by a private company, it would have almost
certainly gone bankrupt. The appalling situation arose because of the
lack of coordination among the various wings of the government, mainly
between the ministries of petroleum and natural gas and Chemicals and
Fertilizers.
Readers may wonder what relevance this story has got now. As I said
earlier, the circumstances may be different but I discern a similar
situation developing as a host of companies feverishly draw up plans to
build terminals for import and re-gasification of Liquefied Natural Gas
(LNG) with no clear idea of whether there are consumers ready and
waiting to buy the finished product.
India has six LNG re-gasification terminals in operation with a total
capacity of 42.7 million tonnes per annum. Except in the case of
terminals located at Dahej and Hazira in the western state of Gujarat,
the capacity utilisation of the other terminals is abysmal at less than
20 per cent. In the case of Indian Oil Corporation’s terminal at Ennore,
near Chennai in Tamil Nadu state, it is as low as 12 per cent.
The performance picture will be drastically different when the 5 million
tonne per annum terminal at Dhamra in the state of Odisha, which is at
an advanced stage of construction, comes on stream. This is because the
main promoter of the terminal is the Adani group. The PSU oil companies
are vying with each other to book regassification capacity in the Dharma
terminal. Adani has Total of France as its co-promoter. The capacity of
the terminal is expandable to 10 million tonnes per annum. It will be
the second LNG import terminal to be built on India’s east coast, after
the Indian Oil Corporation’s Ennore terminal which was opened in March
2019.
It is difficult to explain how or why the Dhamra terminal has bucked the
trend and proved to be a success – at least on paper – even before it
has started operations. This once again proves that in India, the
identity of the promoter is very important – and outweighs all other
considerations. At one time, Reliance Industries displayed the same sort
of derring-do and were able to pull off the almost impossible with
surprising ease. Somewhere, it has lost that admirable touch with the
result that it has fallen off the perch.
How advisable is it to create regassification capacity when existing
terminals are finding the going tough? Petronet LNG Ltd (PLL) was able
to overcome the drag on its fortunes arising from the low capacity
utilisation of its 5 MMTPA Kochi terminal because there was a
compensating factor. Its 17.5 MTPA Dahej terminal, rated as the largest
in the world in terms of capacity, has been operating at near maximum
capacity. In contrast, oil major Shell, which owns the Hazira terminal
in the same state of Gujarat, had to face turmoil as its terminal lay
rusting in the first few years. Even now its capacity utilisation is
below 50 per cent.
Petronet LNG Ltd’s 7.5 million tonne per annum LNG imported from Qatar,
now raised to 8.5 million tonne, is handled by the Dahej terminal which
keeps it busy throughout the year. The Kochi terminal did not even have a
pipeline ready to transport regasified gas to nearby markets. For many
years, the Kochi terminal capacity utilisation was below 10 per cent.
PLL is virtually a PSU and its leadership does not have the aggression
or imagination to match the Adanis or Reliance Industries.
Surprisingly, the record of low capacity use has not deterred others
from pursuing plans to build more regasification terminals. This time, a
number of private players have jumped into the fray. Petronet LNG is
also planning a 4 million tonne floating LNG import terminal at Gopalpur
in Odisha which will later be converted into a 5 million tonne per
annum onshore terminal.
India’s first floating terminal for liquefied natural gas (LNG) at
Jaigarh in Maharashtra is expected to be operational this year. Another
floating terminal at Jafrabad in Gujarat is likely to begin operations
this calendar year.
All of this presages a looming glut-like situation. True, India’s demand
for imported natural gas is projected to go up with domestic production
refusing to rise. In the absence of a transnational gas pipeline like
the one which China has built to import Russian gas, India still has to
depend on LNG. The initiative for building a transnational pipeline has
to emerge from the political leadership, either in the gas producing or
the gas importing country. Meanwhile, the LNG import lobby is gaining
strength and wields enough influence to scuttle the pipeline option.
The Indian market is highly price sensitive. The recent surge in the
natural gas price has dampened LNG imports. The future of these
terminals depends to a large extent on the gas price as Indian consumers
are extremely cost conscious. The LNG terminal owners cannot be unaware
of this reality.
The HBJ pipeline was owned by the Indian government. It did not matter
much when the enterprise drowned in losses. The private players cannot
afford that luxury without the safety net of a bailout plan.
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