Monday, May 14, 2012

Cochin LNG Terminal

Petronet LNG Limited, one of the fastest growing world-class companies in the Indian energy sector, has set up the country's first LNG receiving and regasification terminal at Dahej, Gujarat, and is in the process of building another terminal at Kochi, Kerala. While the Dahej terminal has a nominal capacity of 10 MMTPA [equivalent to 40 MMSCMD of natural gas], the Kochi terminal will have a capacity of 5 MMTPA [equivalent to 20 MMSCMD of natural gas.


 
PLL, incorporated on April 2, 1998 ,formed as a Joint Venture by the Government of India to import LNG and set up LNG terminals in the country, it involves India's leading oil and natural gas industry players. The promoters are GAIL (India) Limited (GAIL), Oil & Natural Gas Corporation Limited (ONGC), Indian Oil Corporation Limited (IOCL) and Bharat Petroleum Corporation Limited (BPCL).

Kochi LNG is a proposed greenfield Liquefied Natural Gas (LNG) storage & re-gasification terminal at Puthuvypeen Special Economic Zone (SEZ), Cochin.The land was allotted by Cochin Port Trust. Construction of the terminal is in full swing and the commissioning of the facility is expected in 3rd Quarter of 2012.

The Cochin Project involves setting up of

(i) 2 LNG Storage Tanks, each of 160,000 m3 storage capacity of full containment type for storing LNG and allied facilities / equipment for boil-off gas recovery, gas vapourisation, transmission & unloading of LNG ;

(ii) Send out and re-gasification facilities suitable for handling 2.5 MMTPA of LNG along with the associated facilities

(iii) Marine or Offshore facilities including the jetty, berthing / unberthing and mooring / unmooring of LNG Tankers and other associated facilities required for all weather operations of LNG ships of nominal capacities ranging from 65,000 to 216,000 m3

(iv) A captive Power Plant.



The contractual structure for Kochi Project would also be similar to the tram line model followed for the Dahej Projects. The Company proposes to source LNG from the Gorgon Project in Australia, which is promoted by Chevron (50%), Exxon Mobil (25%) and Shell (25%). The TCA, GSPA and GTA will be executed on back-to-back basis with the LNG SPA. PLL will also be hiring two LNG vessels under long term charter and has also acquired 3% equity stake in the special purpose company formed to own and operate LNG tankers that would be utilized to transport LNG to the Kochi Project.

Two Storage Tanks of Cochin LNG project is been constructed by IHI, Japan ,the re-gasification facilities being constructed by CTCI, Taiwan and the marine facilities being constructed by Afcons Infrastructure Ltd.

What is Natural Gas?

Natural Gas consists mainly of Methane and small amounts of ethane, propane and butane. It is transported through pipelines but is extremely bulky. A high-pressure gas pipeline can transport in a day only about one-fifth of the energy that can be transported through an oil pipeline.

What is LNG ?

The very concept of Liquefied Natural Gas (LNG) is a response to the inefficiency of natural gas pipelines and the technical and economic problems of running pipelines over long distances. If natural gas is cooled at minus 160.5° C, it becomes liquid and more compact, occupying just 1/600th of the gaseous volume. This is because most of the heavier hydrocarbons are removed during liquefaction.The cargo that is transported in bulk by sea is predominantly methane (over 80%) — a colourless, odourless, transparent liquid which is non-toxic, non-corrosive and less dense than water. As LNG is highly volatile, specialist operators are involved in its transportation.

A TYPICAL LNG CHAIN


i. Upstream development of long-term natural gas supply for feed gas to an LNG plant

ii. Downstream development of liquefaction , storage and loading facilities

iii. Marine transportation

iv. Downstream development of receiving terminals for re-gasification and pipeline transportation to market

 Applications of LNG

Natural Gas is not only efficient, clean, eco-friendly and flexible in control, it meets many of the fuel requirements of modern industrial society. LNG's main applications are:

a) Electricity generation : Fuel for base load and combined cycle/ co-generation power plants.

b) Public and commercial : This clean fuel, which is cheaper than LPG, can be used as piped gas for households. In the West, most household consumption is accounted for by piped gas, whose use is increasing rapidly

c) Industrial :  Under boiler fuel for steam raising and heating applications.

d) Alternative motor fuel to diesel : The use of natural gas as fuel for automobiles is increasing rapidly as it is 30 to 40% more efficient and much cleaner than traditional fossil fuels. With only one carbon and four hydrogen atoms per molecule, it is the most eco-friendly option and is gaining increasing relevance in the age of Global Warming and Climate Change.

e) Petrochemicals : Several vital chemical products, e.g. methanol, can be derived from natural gas.
INDIA – A MAJOR GAS/LNG CONSUMER
At present India is the 13th largest gas consumer (65 BCM) and 6th largest LNG importer( 16 BCM). India’s LNG import capacity as of now is around 13.5 Mmtpa and meeting approx. 20% of total gas supply of the country.


Hydrocarbon Vision 2025’ envisaged a GDP growth of 5-6% for the E&P sector along with demand supply scenario of oil & gas in the Country. Current GDP growth of 7–9% translate into overall energy demand growth at CAGR of 7.50%. Considering the projected economy growth and related energy requirement, the Share of Natural Gas in Indian energy basket is expected to increase from 11% to 20% by 2025. Despite increase in domestic gas production dependency on imported gas to increase substantially to full fill the growing demand.



Saturday, May 5, 2012

why the share of India’s seaborne trade carried in Indian Ships has declined from 40% in '80s to less than 9% in 2008-09 ?

Overview of Indian Shipping Sector

 The importance of maritime transportation in the economic development of India can be seen from the fact that 95% of country’s trade by volume and 77% by value moves by sea. The Indian seaborne trade has been growing at a CAGR of 11.38% for the past 10 years, and it was the highest, 12.25%, prior to the global slowdown. This growth rate indicate that the Indian seaborne trade will be grown to the level of 2,134 million tonnes by the year 2020 from the present level of 598.70 million tonnes. At present Indian seaborne trade constitutes only 3.66% of the global seaborne trade and with the kind of projections mentioned, it can reach a significant 9.3% by the year 2020 .

While the Indian seaborne trade has been growing substantially, the share of Indian ships carrying country’s overseas trade has been declining from 40% in late 80’s to 8.4% in 2008-09.(Source- Maritime Agenda Jan’11) . This continued slippages in the share of overseas trade is in turn causing a drain on foreign exchange in terms of payment of freight charges.

Recent trade analyses show that the Indian trade conditions are ripe for an increase in tonnage with clear scope in tankers, LNG/LPG carriers , OSVs, dry bulk carriers and containers. Yet none of the Indian companies has declared any plan for expansion or given any indication of an optimistic outlook for growth.

The cautious industry reaction, in spite of the obvious potential for growth, is a major concern and an analysis of this reveals below mentioned issues and bottlenecks confronting the sector.

Issues Confronting Indian Shipping Industry

1. Inadequate Growth of Indian Tonnage

Indian tonnage is not growing in pace with the fast growing maritime trade. As on 1st January 2011, India has 700 vessels under coastal trade and 340 vessels under overseas trade totalling to a fleet size of 1040 ships (source INSA report) with a tonnage of 10.2 mgt. In terms of fleet size, the Indian shipping industry is makes only a marginal share of just about 1% of the global fleet. This inadequacy is one of the reasons for the declining trend of Indian fleet’s share in overseas trade. Considering the fact that the Indian seaborne trade could increase 3.56 times by 2020, the Indian shipping tonnage could be brought up to the level of 130million GT by then to arrest further decline in the share of Indian ships.

2. Age profile of the Indian fleet

Another major reason for the declining share in overseas trade has been the age profile of the shipping vessels in India. As per INSA report around 52%of the Indian shipping fleet are over 20 years of age and overdue for replacement. This makes the Indian vessels non competent with the relatively new and modern foreign vessels.

3. Inadequate Port facilities & high cost

Indian ports are the gateways to India’s international trade, and are handling over 90% of foreign trade. Though the bulk of Indian trade is carried by sea routes, the existing port infrastructure is insufficient to handle trade flows effectively. Around 70% of the ship time is estimated to be spent at ports.High transportation costs, port delays, poor turnaround time of coastal ships and inadequate mechanical handling facilities are some of the other reasons for the declining share of Indian shipping tonnage in India’s overseas trade.

4. Lack of capital investment in shipping sector.

In the present competitive global scenario, all countries face the challenge of continuous upgradation and modernization of their maritime transport system in order to cope with the rapid increase in volume. This requires the adaptation of new and improved technology in both vessels as well as the port operations and transport facilities. The increasing size and sophistication of ships and port facilities require heavy capital investment, which is another major problems faced by Indian shipping industry.

5. Lack of a Clear Policy Approach

 Lack of conviction – Requests for fiscal regime change for the global competitive conditions has always been discouraged by the argument ‘ownership is not necessary for efficient cargo movement’ . Unfortunately this argument ignores the high cost of freight imposed on any country that does not have the bargaining powers to negotiate terms. It is to be noted that the tactical wisdom of a “Buy FOB ,sell CIF” practice of Japan, USA and China is not just to support the national shipping, but is a bargaining strategy in the international trade.

 Economic benefits undocumented – Another reason for lack of a clear policy is the absence of a systematic study to evaluate the overall benefits and employment potential of the multiplier effect of shipping.

 Global opportunity unexploited – In a globally flat world, in the current macro-economic atmosphere, the ownerships and resources for expansions are sourced by forming joint ventures and consortiums of global partners. There is no reason why we must strictly stick to the vision of Indian Flags belongs only to the Indians. This policy is another bottleneck in the growth of Indian tonnage.

 The national energy security issue – This is another policy issue which has direct bearing on the growth of Indian tonnage. Govt. Of India should take a policy decision to ear mark the gas and oil sector for national tonnage. This policy will boost the growth of Indian tonnage and its share in overseas trade. India has oil tankers, some LPG carriers and very few oil rigs, but there is not even one LNG carrier . This void should be filled to avoid further decline in the share of Indian vessels in overseas trade.

 Lack of direction in offshore vessel growth- Due to lack of policy directions in the area of offshore maritime services, the Indian OSV owners chosen to put their vessels in the cross trade rather than in the Indian waters. It is necessary to offer a level playing ground to Indian operators to compete effectively with their foreign counter part.

 Special laws for bilateral trade – Bilateral shipping arrangements are considered to be an effective tool to ensure cargo support to the Indian shipping companies. However, in reality, the International Shipping Trade Agreements signed with other countries are mainly used to strengthen the diplomatic relations rather than maximise bilateral trade. A new business modal could be evolved for mutual benefit and increased use of ship of the country flag. Such support enhances the competitive strengths of national shipping companies, and thereby contributes to the growth of national fleet and its share in overseas trade.

6. Restrictive Fiscal Climate

This is another issue which pulls back the Indian tonnage growth. At present there are around 12 taxes that the Indian shipping companies are subject to besides the tonnage tax. These together reduce the 2-3% tax benefit granted under the tonnage tax regime.



It is to be noted that countries like UK and Germany ,who introduced Tonnage tax at about the same time as India , almost doubled their tonnage in a span of 5 years against India’s growth of 21%. (Source – 11th 5 yr plan, Working group report on Shipping and IWT )




As maritime trade is important for the economic development of the country measures could be taken to eliminate or mitigate the incidence and impact of the above taxes to accelerate tonnage growth.

7. Half hearted belief in coastal shipping

Despite its evident advantages over the land based modes of transportation, coastal shipping in India has not become an integral part of the country’s transport infrastructure. Economic reforms in India have triggered a high rate of economic growth in the country and this in turn has led to an increase in transport demand. This demand is being met mainly by the rail and road transport systems. About 60-65% of the freight traffic is carried by road , 30-35% is by rail and only about 7% by coastal shipping.

Though coastal vessel number and tonnage increased from 244 / .60mgt in 2003 to 700/1.0 mgt on 1st January 2011 (source INSA report), the actual number of cargo carrying fleet is very small. A relatively modest investment in coastal sea routes with appropriate policy changes would bring substantial benefits to the shipping industry, both in domestic and international sectors.

8. Regulatory issues

Shipping industry which caters to the demand across continents is regulated by both domestic and international regulations. The compliance of such regulations add cost to the shipping industry. Also the wider regulatory framework makes stricter entry barriers into the Indian shipping industry.

Lack of regulation in offshore services - With increasing E&P activity offshore, there will be foreign and Indian drilling units and support vessels employed in the EEZ area surrounding our coast. While Indian flag vessels would be operating under MS rules and ISM codes, the foreign flag support vessels will have very little control exercise on them. Foreign vessels deployed in this sector will not be inspected by Indian port state administration as they operate in EEZ. A well defined common statutory rules and regulations should be evolved, jointly by the petroleum and shipping sectors, and a regulatory body should be formed to monitor all vessels in this sector for the compliance and implementations .

 Restrictive manning policies – Under the MS Act, 1958 Indian flags are under the compulsion to employ only Indian seafarers. Though India is one of the top supplier of qualified seafarers, the Indian shipping industry is facing serious shortage of manpower, especially at the senior levels. This is mainly because many of the officers preferring to sail on-board foreign flag vessels owing to discrepancy in taxation policies.

 Outmoded legislation- Regular updation of the maritime legislation is the most important aspect of effective implementation of the IMO instruments .By adoption of conventions, IMO made several changes in maritime laws, especially in the safety and environment related issues. All of them are not incorporated in the Indian MS Act. Also, the Act is not in pace with the changing patterns of the trade.

9. Maritime Security

The sea borne terrorist attacks on Mumbai- 26/11, focused the need for strengthening maritime and coastal security against threats from sea. A number of measures have been initiated such as CT-PAT, ISPS, CODE, LRIT etc to enhance maritime security. This has added new expenses to shipping industry, which reflects in the entire supply chain. A balanced approach would have to be arrived at for managing such huge costs, without compromising on the security aspect, to make Indian shipping sector more cost effective and viable.

10. Environmental issues

Over the years the shipping industry have been confronting with a number of environmental issues. Like other economic sectors, maritime transport has a role to play in addressing formidable challenge of climate change. There is an ongoing battle among the national and international authorities in the development and implementation of environmental standards. Commercial viability will have to be in balance with requirement for environment protection.

Conclusion

India is now projected to become the fourth largest economy in the world by 2020, after China, Japan and the US. Indian mercantile trade has grown phenomenally and now constitutes 4% of the GDP. Government of India has been supporting the growth of the industry through various measures. However the competitive position of the Indian shipping industry needs to be strengthened.

The other players in the shipping and associated sectors have also a role to play for the development of the industry. Indian shipping industry needs to team up with foreign consortium of fleet owners to tap the growing LNG transportation business. Indian ship builders must focus on benchmarking their own processes to international standards to improve the efficiency, delivery time, price and quality. Innovative financing measures such as German KG model may be adopted to encourage fund flow into this sector.

Rather than merely regulating and controlling the national fleet, India should have policies in place which proactively encourage and promote investments in International shipping services under the Indian flag and should change legislations to permit it.

As a maritime nation, India should take a mature approach of looking beyond the Indian trade to become a global player and to provide global conditions of trade. It is therefore essential for India to put together all such strategies, that would lead to optimal and effective contribution towards developing the shipping industry.