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Wednesday, December 9, 2009

IOC's Indian game plan

India's top fuel retailer is now looking at home to pursue growth opportunities after failing to make any significant acquisition overseas.

The company plans to revive a shelved project to regassify imported liquefied natural gas (LNG) on the east coast of India, which is India's ‘Gulf of Mexico’.

Five years from now and India will have enough natural gas and LNG supply to satisfy the surging demand of the clean fuel.

If that is so, does another LNG terminal make sense?

Indian Oil Corporation (IOC), the country's biggest oil firm, thinks so.

BM Bansal, director of business development at IOC, said, “We are looking at investing between Rs 3,000 and Rs 4,000 crore and are talking to countries like Australia, Nigeria, Iran, etc.”

IOC has revived plans to set up a 2.5 million tonnes per annum LNG import facility at Ennore near Chennai, after abandoning it 2007 and is in talks with global giants like Shell and Chevron to source the liquefied natural gas.

But reviving an already shelved project is bound to raise some eyebrows as India is expected to have an excess LNG capacity in the next five years.

AK Purwaha, a gas expert said, “A LNG terminal in Tamil Nadu is a feasible option for the company. Though Reliance will supplement lot of country's demand, India will still need 300 mmscmd of gas for the next few years.’

India currently has an LNG import capacity of 13.5 million tonnes per annum. This is shared by 10 mtpa of Petronet at Dahej and 3.5 mtpa of Shell at Hazira. Both Petronet and Shell are expanding their capacity.

Besides these, Ratnagiri Gas and Power, the erstwhile Dabhol Power Company, is also setting up a 1.5 mtpa terminal in Ratnagiri and Petronet has planned a capacity of 2.5 mtpa at Kochi in the east coast.

The gradual ramp of Reliance's KG basin gas is eating into the shares of LNG in the country. With some major gas blocks expected to come on-stream from ONGC and GSPC, the future of LNG is perhaps grim.

So, in such a scenario, IOC's LNG terminal might turn out to be an unviable proposition. The only answer option will be long-term supply contracts.

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