Kerala needs to do some homework on LNG

The Hindu dated September 1, 2010
http://www.hindu.com/2010/09/01/stories/2010090162970400.htm

THIRUVANANTHAPURAM: Kerala is pinning very high hopes on the liquefied natural gas (LNG) terminal that may be commissioned in Kochi in a couple of years, but there are issues that may have to be sorted out at the current stage itself.

The envisaged capacity of the terminal of Petronet LNG Limited in Kochi is 2.5 million metric tonne per annum (mmtpa). Of this quantum, Petronet has struck tie-up for the supply of 1.2 mmtpa. The plan is to expand the capacity to 5 mmtpa later.

A top official of the Kerala State Electricity Board (KSEB) told The Hindu that the State's power sector alone was working on plans requiring the supply nearly 6 mmtpa of LNG. The supply of 1.2 mmtpa of LNG for which the terminal has established linkage is fully booked by the Kayamkulam unit of the National Thermal Power Corporation (NTPC), which plans to expand its power generation capacity by 1,050 MW, besides switching its existing 360-MW plant from naphtha to LNG.

Another issue concerns the pricing. Besides the power sector, State's industries, city gas supply programmes and also the industries and other fuel consumers in the districts of neighbouring States close to the borders with Kerala are counting on LNG being available from Kochi.

The cost of LNG from Kochi under the present tie-up between Petronet and the foreign company is linked to international crude oil prices. According to a calculation done by the NTPC, a unit of electricity generated using LNG at Kayamkulam when the crude oil price is $80 a barrel will cost Rs.6.83. This is double the average price at which KSEB supplies energy to its consumers.

“The likely volatility of the prices can upset the hopes of the power sector if the cost of LNG from Kochi is linked to international crude oil prices. There is a thinking at the national level to fixed a ‘pooled price,' which will make LNG relatively cheaper for the Kochi terminal since natural gas produced in India is cheap. Kerala will have to start pressing for that now itself,” the KSEB official said.

The NTPC has already started making efforts to insulate its Kayamkulam unit from price volatility of LNG by offering Qatar Petroleum, which can ensure the supply of LNG at an agreed to price, stakes in the unit.

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