Long-term prices steady; spot prices may fall: Petronet LNG

A: As far as business of Petronet LNG is concerned, we are basically based on the volume coming on the long-term contract signed by Petronet. Either LNG directly bought by the Petronet from long-term suppliers or the capacity booked by various parties in our terminal on use or pay basis. So, our long-term prices remain as they are. They are not impacted by spot prices moving up and down. We have seen, during the last one or two months, that the spot prices in the global market has started rising and this is primarily because of the winter season which is coming in and the demand in other part of the world like in Japan, Korea or China has increased and because of that the prices have temporarily increased in the spot market.

But as far as the Petronet business is concerned, since we have a committed long-term volume coming under the long-term contract as well as the committee contracts signed by various users who have to bring their volume. If they bring volume it is fine, if they don't bring they are committed to pay for use or pay. So, it has not really impacted as far as the utilisation of Petronet terminal is concerned.

Reema: If you could just tell us from an industry point of view. Have LNG imports come down on the back of rising LNG spot prices because they are at two year highs. Could you give us some numbers on that?

A: I can tell you about October-November. The spot volume coming in the market remains the same but definitely we have seen some downward trend in the month of December and likely happened in the month of January also because the prices in the spot market has risen and the availability of volume is also not that good as it used to be earlier. So, there will be impact on prices and definitely it will have some impact for those who are in the market for buying of spot LNG. So, we will have to see in the coming months.

Nigel: Could you make us understand this that crude prices have moved up, they are up by about 60-70 percent, but LNG prices have more than doubled. What kind of a relation are we seeing in terms of crude prices and LNG? If LNG is going up faster then are you seeing the shift towards crude?

A: The maximum LNG consumption in the country is basically replacement of crude oil whether it is going to the fertiliser sector, industries or CGD wherever the maximum LNG is getting consumed today Regassified Liquefied Natural Gas (RLNG) getting consumed today. So, if crude prices moves up and LNG import under long-term contract is linked with crude prices. So, if crude price is also moving it really doesn't matter to those consumers who are using as a replacement of crude. So, when there is an increase in crude prices the LNG prices also moves up and if there is a reduction in crude prices LNG prices come down but it is replacing the liquid fuel. So, it really doesn't matter to the consumer because they have an alternate which is linked with crude prices.

Reema: Are there any other fuels because of which with the rise in LNG prices the competitiveness could come down and maybe there could be a switch?

A: A bit of impact would happen but I am not really seeing that major impact would happen because crude prices rising up. Only the power sector is there who is independent to the alternate fuel because their alternate generally is coal, so there would be some impact but we are seeing that consumption of RLNG in power sector is very small. It is not a big quantity that is getting consumed.

Reema: The other big fear in the market is the fact that LNG supply is going to increase from here on. The Mundra LNG Terminal gets commissioned in FY18. The Dabhol capacity will restart post the monsoon. How much of a worry is that?

A: As I mentioned that we had just commissioned our additional 5 million tonne capacity in the month of October and now we are a 15 million tonne terminal at Dahej.

As far as our commitment of 15 million tonne terminal is concerned, this is committed on long-term basis; long-term import as well as long-term capacity booking. So as far as Petronet is concerned, our business is stable and we have a commitment of bringing LNG either from outside and selling in India on a long-term basis or use of our capacity which is committed on long-term basis. So, we are not really much concerned about this additional facilities coming but on an overall basis going forward there is a growth and there is a requirement of more and more natural gas in the country as we are seeing the growth is happening and there is always a desire to make it a gas economy in the country. So, it is a welcome step that more and more LNG facilities are getting created and more and more pipeline should come in the country for more and more gas consumption.

Nigel: Kochi, what is the capacity utilisation currently and what is the targeted capacity utilisation there?

A: Kochi is a major concern for Petronet and as of now there is only one consumer who is using Kochi that is the Kochi Refinery owned by Bharat Petroleum and the flipside is that that Kochi Refinery has been expanded and their consumption is likely to increase in the coming months and some more increase would happen in Kochi. But all depends on the pipeline which would get connected to other markets and which is likely to take more time though the progress is happening in Kerala especially. The pipelines are getting laid. Gas Authority of India Limited (GAIL) is working on that and let us see the outcome of the pipeline when they are ready.