New Delhi The stagnation in domestic gas and coal production has led to a revival of interest in the liquefied natural gas (LNG) business, despite it being the most expensive fuel for power generation. Among the growing list of energy companies looking at the LNG business are government-run Indian Oil Corporation (IOC), which plans a 5 million tonne (mt) terminal at Ennore Port by 2015, and Reliance Power, which, in a joint venture with Shell, would set up a terminal with similar capacity at Andhra Pradesh, close to the its KG-D6 gas block and gas-based Samalkot power plant. While Oil India also plans to enter the LNG business by end of this fiscal, the Reliance-BP combine is looking to enter the business either through a stake purchase or through own terminal. Even existing players such as GAIL and Petronet LNG (PLL) are planning more terminals on the east coast. GAIL has initiated discussions to partner the Andhra Pradesh government for a floating LNG terminal along the state’s coast. An LNG terminal of 5 mt — the standard size — costs about R4,500-5,000 crore. Industry experts estimate that this business could see a total investment of R30,000 crore over the next five years. Power generated from LNG could cost up to R8 a unit going by the commodity’s current price, whereas the tariff for power from plants run on imported coal, which is costlier than the domestic variety, could be roughly half of that. LNG can be imported from West Asia, Central Asia, South America and Australia via specialised vessels and needs to be regasified and stored before being taken to the consumer through pipeline networks. “Of course, there is a desire by many companies to set up LNG terminals, but there are no concrete plans in many cases and it will certainly take (some) time. We expect some of the proposed projects could come up not before 2016,” Petronet LNG director finance RK Garg said. As for domestic gas, the current production stands at 135 million standard cubic metres per day (mscmd) and the demand is around 243 mscmd. According to industry estimates, even if the production from KG-D6 goes up, which is doubtful, the domestic output would be just 215 units by 2019, against the projected demand of 530 units. This strengthens the case for larger capacities of LNG handling in the country. “Even though the output from KG-D6 increases, there will still be demand of LNG... but pricing of imported gas will play a major role going forward,” ICICI Securities analyst Mayur Matani said. Some analysts are, however, sceptical about the rush to set up LNG terminals. “Imported coal and LNG are not viable solutions as these are costly fuels... Unless we see reforms in the energy space, big investments will not happen (in coal and gas production). Most of the plans for LNG terminals could remain only on paper,” SMC Global’s Jagannathan Thunuguntla said. Currently, the two LNG terminals operational in the country are Dahej of PLL and Hazira of Hazira LNG (HLPL). While the Dahej terminal has a capacity of 10 million tonnes per annum (mtpa), which is equivalent to 40 msmd of natural gas, the Shell Hazira terminal is running at a capacity of 2.5 mtpa. Two terminals, one of GAIL in Ratnagiri (Maharashtra) and another of PLL at Kochi with initial capacities of 2.5 mtpa are set to become operational by the year end. “The price of spot LNG cargoes is currently ruling at $15.5/unit and even long-term contracts are priced high as it is linked to crude. At the spot price, the electricity tariff could go up as high as R6.5-7 per unit. The prices of imported gas is very high even at long term contracts; therefore, the power regulators (or the state government) have to increase tariffs,” Garg said. The LNG capacity in the country is just about sufficient to meet existing demand of gas in the market but the situation is expected to ease by 2016 when many of the proposed projects of oil companies go onstream. It is expected that if most of the proposed projects are commissioned, the country will have LNG regassification facility to process 180 mscmd of gas by 2016. India’s total thermal power capacity is over 133,000 MW out of which coal-based capacity is about 113,800 MW and some 18,400 MW is gas-based. The price of imported coal at New Castle port in Australia, which is also the benchmark price of Asia for the week ended June 8, was $88.58/tonne. The current price of Indonesian coal, which gives an idea of the cost of imported coal, is $96.65/tonne.