Petronet LNG hopes to sell gas to the power sector from its proposed terminal at Gangavaram port in Andhra Pradesh. The company has to source liquefied natural gas cheap if it is to be viable for the power sector.

According to A.K. Balyan, CEO and Managing Director, PLL has signed agreements with HPCL to cater to the latter’s Vizag refinery and at least five power generation companies located close to port are in discussions with PLL for sourcing liquefied natural gas.

Nearly 4000 MW of generation capacity, he says, is idling for want of gas. Two or three of them have some linkages. But the supplies are inadequate to run these plants for more than 15 days a month.

Better utilisation

“They feel there will be better utilisation of (generation) capacities by adding LNG to the domestic gas supplies,” Balyan said.

The viability lies in peak period purchases at high tariffs by Southern states.

“See how these States are buying power. Kerala buys more than 50 per cent of power at double-digit tariffs,” he said.

With domestic coal in short supply and the cheapest imported coal (4200 GCV) costing no less than $55 a tonne (about Rs 2,750), coal-based generation is proving costly. Use of LNG for power is exempted from Customs duty and VAT.

Apparently, the State government-controlled utilities that end up buying power at Rs 10 a unit are keen on this model. “And that’s why they are talking to us… They will be happy to get assured supply and generate electricity (tentatively) at Rs 7 a unit,” he said.

But to make this plan viable, PLL has to source LNG cheap. The company says it will fall back on its time-tested model of securing nearly 70 per cent supplies on a long-term basis.

Gas sourcing

Balyan, however, is not in a hurry to strike long-term deals as he expects LNG prices to soften further due to dual impact of improving supply outlook and low demand projections, except in West Asia and India.

“I think some softening of prices should happen in short- and long-term contracts. It is a matter of time before we see that happening,” he says, referring to the subdued spot LNG prices now ruling at $10.5 per million metric British thermal unit (mmBtu).

Petronet’s plan is to sign long-term contracts when the prices will be stable. Till then, it will strike short-term contracts, lasting up to two years, to import approximately one cargo a month.

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