The agreement between ExxonMobil, IndianOil and Chart Industries, to develop ‘virtual pipelines’ in India, is aimed at meeting the natural gas demand from consumers not connected by existing pipeline networks.

On Monday, ExxonMobil India LNG signed a letter of cooperation (LoC) with Indian Oil Corporation and Chart Industries to establish a system of transportation infrastructure to expand gas access in India. These ‘virtual pipeline systems’ will deliver LNG by road, rail and waterways to areas not connected by physical pipelines, the companies said.

Focus area

“Consumers currently relying on naphtha and fuel oil will be on the cross-hairs of this agreement on account of the cost economics,” said Sumit Pokharna, Research Analyst - Oil and Gas Sector and Vice-President, Kotak Securities. “These are dominant in the fertilisers, oil refineries and refractories sectors. Additionally, as more stringent emission norms are enforced, many consumers without pipelines in the vicinity may want to switch to natural gas.”

“Just to illustrate, the pollution control body banned manufacturing plants in Morbi (Gujarat) from using polluting fuels, resulting in a significant jump in gas consumption. In fact, gas accounts for 26 per cent of the energy consumption mix in Gujarat,” Pokharna added.

Analysts also said the present low price of natural gas in the spot market is an incentive for gas-based power plants to reconsider initiating operations. But relying on the spot price of natural gas remaining in the $3-4 a unit range is a risky bet for longer-term profitability. Industries that can absorb fluctuating natural gas prices will be better placed to look at the LNG supplies that come from the ExxonMobil-IndianOil-Chart Industries agreement.

“The parties will implement a gas infrastructure initiative that leverages LNG ISO intermodal containers to move gas as a reliable, cleaner and cost-effective fuel,” said an ExxonMobil statement.

‘Exploratory agreement’

“This is only an exploratory agreement; the fiscal and operational terms will be firmed up later,” officials in the know said. “IndianOil is already serving some such consumers through trucks fitted with specialised cryogenic LNG containers.”

Under the agreement, Chart Industries will develop the equipment to develop the ‘virtual pipeline’. ExxonMobil is said to be sourcing the LNG while IndianOil will handle the distribution infrastructure.