India’s higher LNG regas rates receive customer flak

Spanish Market: Natural gas
13/09/24

Indian LNG terminal developers led by state-run Petronet LNG and Shell are charging some of the highest rates among the world to regasify LNG, prompting consumers to complain, raising concerns over the government's plan to more than double the share of gas in the country's energy mix to 15pc by 2030.

Petronet is charging as much as Rs62.91/mn Btu ($0.75/mn Btu) to regasify the fuel received at the 17.5mn t/yr Dahej terminal on the west coast, the country's largest such facility, according to consumers using the import facility.

Coupled with the annual escalation in charges, the rates are "unsustainable in the longer-run," a person who did not wish to be identified said.

"Going by the 5pc increase in regas rates every year, by 2030, regas rates could become Rs84/mn Btu ($1/mn Btu), which is not justified," the source added. State-run Petronet has lifted regasification rates by 5pc in recent years.

"The 5pc hike in regas rates every year may eventually have to stop in the coming years before it reaches a dollar," an equity analyst at a foreign investment bank said.

Shell is also charging similar rates at its 5.2mn t/yr Hazira LNG import facility on the west coast at $0.75/mn Btu, industry sources said. Both Dahej and Hazira are well connected to consumption centres by pipelines and operate year-round, unlike many of India's other terminals which suffer from lack of a breakwater facility or weak pipeline connectivity.

Higher regas prices account for the lower usage levels in other terminals, because the country's overall LNG imports are lower than major importers like China or Japan, market participants say.

India's regasification rates are much higher compared to terminals in the Europe. The 9.2mn t/yr Gate terminal in Netherland charges around $0.35/mn Btu for unloading and regasification, while Spain is much lower. Regasification rates in Japan LNG terminals are around $0.5/mn Btu, while rates at terminals operated by Jera, like the 22.9mn t/yr Futtsu LNG facility, are much lower, according to market participants.

Regasification rates in China, however, are also higher, on a par with India as PipeChina's eight LNG terminals, including the largest 12mn t/yr Tianjin terminal in north China, and 6mn t/yr Dalian terminal in Liaoning. These are charging $0.7-1.3/mn Btu for unloading and regasification, sources say.

Regas rates across the world are mostly determined by market forces based on demand fundamentals compared with fixed prices charged by Indian terminal operators.

But record regasification rates have not stopped city gas utilities and industries from using Petronet and Shell's terminals to import the fuel, enabling Petronet to operate Dahej at around 109pc in April-June, a record for the facility, according to oil ministry data.

Hazira, which in the past has operated at over 80pc, operated at 46.5pc in the second quarter.

Capacity usage at LNG terminals in Europe, China and Japan are mostly in the range of 30-50pc, and the rest of India's five terminals with a combined 25mn tons a year in capacity operate at 20-40pc of that.

Judging by deliveries in January-July this year, India's LNG imports stood at 16mn t, compared to an annual installed import capacity of 47.7mn t.

Strategic location

Importers in the country have little option of switching to other facilities because of the strategic location of Dahej and Hazira, which are well connected by major pipelines to the country's western region — where consumption is strong.

The cost structure breakdown for a customer comes to $11.62/mn Btu at the Dahej terminal, which is calculated based on a delivered LNG price at $10/mn Btu, custom duty of 2.75pc at $0.275/mn Btu, regas price at $0.76/mn Btu, system used gas at $0.07/mn Btu and zone 1 pipeline tariff at $0.51.

Tariffs under zone 2 are $0.95/mn btu and zone 3 is at $1.27/mn Btu. The zone 1 tariff is application for pipelines defined as up to 300km from the terminal, followed by between 300-1,200km for zone 2 and zone 3 more than 1,200km.

Regulatory scrutiny

Weak capacity utilisation levels in India's LNG terminals have attracted the attention of India's Petroleum and Natural Gas Regulatory Board (PNGRB), as it issued a draft proposal for enhanced regulatory control earlier this year.

The draft regulations state the PNGRB must approve new facilities or capacity additions, review regasification fees and approve setting up pipeline infrastructure for regasified LNG.

Terminal operators are reluctant to share information with the regulator. Total Adani, operator of the 5mn t/yr Dhamra LNG terminal on the east coast, said "requirement to share commercially sensitive information" such as project costs, regasification tariffs and capacity allocation are "not consistent" with the PNGRB Act. "An authorisation regime for LNG terminals may indeed negatively impact healthy competition and create monopolistic behaviour by the existing terminals."

Each project would require a certification of registration by PNGRB, and may even face penalties if there are any start-up delays. Developers will also need to publicly disclose their regasification tariffs and other charges for transparency.

By Rituparna Ghosh

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