India will become a large gas market over time, says Shell LNG head

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The energy and petrochemicals major Shell is upbeat on opportunities in India in meeting LNG requirements and developing support infrastructure such as the Hazira terminal. The multinational has been recently asked to be part of an LNG terminal project in Kakinada in Andhra Pradesh. It is awaiting full diesel de-regulation to expand its retail presence. Roger Bounds, Global Head of Shell LNG, in an interaction with BusinessLine, outlines Shell’s perspective on the market opportunity and the way forward. Edited excerpts:

In the context of the current global prices, what are the opportunities Shell sees in India?

We think India will become a large gas market over time. It will be larger than what can possibly be met from domestic production. There will be an increase in gas imports. The most flexible form of gas import is LNG. It is a good fit between both the LNG we provide and also the environment benefits gas provides in enhancing the quality of life.

Given the fact that the gas prices in domestic and international markets vary, do you see that as a hurdle in the growth of LNG sector?

It’s always a challenge when the price of natural gas in the world market place is determined by market forces while domestic prices are sought to be set by variety of regulatory mechanisms. It is not unique to India.

We have, however, seen it being successfully addressed in a number of different countries and we are optimistic that it will be addressed in India as well. We are closely following the Government’s efforts to introduce more market-based pricing for gas in India.

How soon do you see the Andhra Pradesh gas terminal getting into the groove?

The State Government is giving us the support we were looking for. We are working with our joint venture partners to see how we can move this ahead.

It’s still early in the stages of the project and there is much more to be done in terms of resolving the commercial and regulatory issues. With our technical expertise, I am sure it will be overcome quite quickly and I look forward to speaking a bit more about it later.

Several natural gas-based plants are stranded. Some of them have the capacity to use other fuels. Do you see gas swap from your Hazira terminal?

There are different tax regimes for different fuel types. Here we go back to the question that Shell looks forward to some market-based pricing and then we have to be careful about different taxes on different fuel types for consumers with different choices.

Differential taxation discourages trading of gas and other products across State boundaries.

At a technical level, we do see the opportunity for fuel substitution and switching in the power market. One of the issue we see come in is not just technical quality of fuels but taxes impacting fuel choice and policy.

The experience in India, so far, with regard to gas as fuel for power plants has been disappointing. Do you see some turnaround?

I don’t think it has been disappointing at all. India has a rapidly growing gas market. There have been positive steps towards gas utilisation. The domestically produced offshore gas has not quite lived up to expectations that the industry had at the beginning.

So the consequence is we are now going to have to find other ways of sourcing that gas in order to make that contribution. There really has been a big step-up.

We see opportunities for LNG growth and for increased gas uptake in a few different areas.

One is where domestic gas reserves starts to run down, LNG can play a role to substitute for declining gas reserves or to complement increasing gas consumption. The second area is in meeting environmental requirements.

The third area is where customers are fully dependent on relatively higher priced liquid fuels such as diesel. People can move away from using diesel in power generation or transport and use LNG instead.

There is room for using LNG to be considered in India in petrochemicals, in urea and other industrial uses in power generation.

One of the things India really needs is infrastructure and that is where projects such as Kakinada can really help because by providing the infrastructure LNG can be provided in the market place. I think we can really contribute to sustainable and industrial development in India

What is your macro perspective?

In the last three or four years, the world energy business has been really affected by the Japan tsunami which took a lot of LNG away into North Asia. This made it difficult in actual terms to procure LNG to supply in the market place.

With the new projects now coming on line in Australia, North America, globally LNG supply is lifting. We are expecting the supplies to almost double every ten years. North Asia is also set to return to more normal levels.

India should be confident to access more competitively priced LNG supplies in to the future. So that is the best encouragement for being optimistic about more LNG supply coming into India.

What are the key policy concerns for you in terms of rapidly growing in India now?

Each project we have worked on has had regulatory challenges.

The most important thing for us to have is formal communication with the Government to be able to work closely with them, to understand what is it they are looking for; and if we can establish a climate of investment certainty, then they will allow us to move ahead.

Source: The Hindu Business Line

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