LNG Alliance’s bet on Indian gas [NGW Magazine]

There has been a concerted effort by the Narendra Modi-led Indian government to promote the usage of gas in the country’s economy. It is aiming to increase the share of gas in the energy mix from 6-7% as of today to 15% by the end of 2020s. To push gas usage deeper into the Indian economy, the government has conducted ninth and tenth city gas distribution (CGD) licensing round in the last couple of years and is now preparing for the 11^th one. It has also encouraged state-owned companies such as Gail to build gas pipelines in the eastern and north eastern parts of the country. On the policy front, it has eased marketing and pricing rules to some extent.

All this focus on the gas has attracted a number of foreign investors to the sector, mostly in the downstream. Last year, French Total tied up with Adani Gas, one of India’s biggest CGD companies. Singapore’s AG&P has acquired CGD licenses and is also building an LNG import terminal in the southern part of the country. Earlier this year, New York-listed Chart Industries signed a letter of co-operation with ExxonMobil and state-run Indian Oil Corp, to develop virtual pipelines to bring gas to more users. In March, Indian cryogenic liquid storage, distribution, and regasification solutions provider Inox India signed a memorandum of understanding with Shell to develop a market for LNG supply by road from latter’s 5mn metric tons/year Hazira terminal in the state of Gujarat.

Now, another Singapore-based firm, LNG Alliance, has plans to invest $350mn in the Indian gas downstream sector over the next four years in an effort to expand its footprint in the pipeline gas and LNG space. It plans to develop an end-to-end solution for India. Its activities will mainly be focused on infrastructure investments, and commodity supply. To begin with it is setting up an office in the southern Indian city of Chennai.

LNG Alliance has plans to export LNG to India from its proposed land-based Amigo LNG liquefaction project in Mexico. The project is likely to ship the first LNG in 2024.

Downstream gas, virtual pipelines

LNG Alliance will develop an end-to-end solution for India, using its “strategic ownership” positions in low-cost LNG supply at around $4/mn Btu on a long-term basis to meet India’s LNG demand.

“Downstream gas integration and virtual pipeline distribution services will be our primary setup-ensuring offtake logistics planning and gas demand integration are well established, to serve as the essential foundation for the success of our gas ventures in India,” said LNG Alliance CEO Muthu Chezhian.

After analysing the pipeline network, logistics regulations for LNG in India, supply chain gaps, demand volumes, demand clusters, LNG Alliance has decided to apply a three-pronged approach that will form the building block of its virtual pipeline service offerings. Chezhian said this approach is essential to make the virtual pipeline logistics to be efficient and effective, and commercially attractive in India.

First, it plans on using a third-party access approach for the truck loading station(s) from existing LNG import terminals. Second, the company is planning to establish two or three LNG satellite stations which will act as a mini LNG storage and regasification facilities to supply industrial clusters, around the major cities, with initial pilot projects in southern India. Third, it will be investing in LNG fuel stations which can be strategically placed along national highways for trucks and heavy vehicles.

For fuel station and industrial cluster supply chain, the company will likely team up with local logistics provider and start regional distribution in the second quarter of 2021. Earlier this year, the Indian downstream regulator Petroleum Natural Gas Regulatory Board said that any entity could set up an LNG filling station in any geographical area, clearing up some regulatory issues.

“We are now in a position to deliver LNG through virtual pipelines, which can be a reliable source for city gas distribution, for industrial users and LNG/CNG based fuel stations,” said LNG Alliance’s executive director Cheryl Goh. “The regasified LNG, tied together with last-mile gas pipeline or virtual pipeline connectivity, could revive more than 10 GW of idle gas-based power plants in India.”

As of September, out of India’s total installed power generation capacity of 373 GW about 199 GW is fuelled by coal. Gas-based projects account for about 25 GW. Owing to shortage of affordable domestic natural gas nearly half of the gas-based capacity remains idle. These projects become unviable if they rely on the expensive imported LNG. India’s local gas production has been declining for some years and the country has been relying on imported LNG, which cost a lot more, to meet domestic demand. A little of half of India’s gas demand is met by imported gas.

In addition to its investment in virtual pipelines, LNG Alliance is also looking at investing in an LNG import terminal on India’s east coast. The talks are at an advanced stage.

“We are at advanced stages of discussion. We are unable to answer beyond this for now, as we are bound by contractual terms for non-disclosure,” said Chezhian.  

Mexican LNG export terminal could serve India

Backed by a US-based institutional investor and two major Asian national energy companies, LNG Alliance is leading the development of Amigo LNG terminal, an LNG liquefaction and export facility on Mexico's west coast at the Guaymas, Sonora. LNG Alliance will own and operate this terminal through its Mexican entity Amigo LNG.

The terminal has a capex of around $2bn and draws its gas supply from the existing network of pipelines from US Waha Hub, Texas to the project site in Mexico. The export capacity is 3.5mn metric tons/year with first LNG shipment scheduled for the first quarter of 2024 and with potential for adding a second train in 2025, to have an overall capacity of 7mn mt/yr. According to the company website, the project site of 150 acres has adequate ocean frontage for marine facility with deep-water access for berthing all types of conventional LNG ships up to 265,000 m³ size.

LNG Alliance believes that by using the ultra-low-cost Permian gas, which has traded at least a dollar below Henry Hub, this terminal will produce the most competitively-priced LNG from the region. The company is in the process of awarding required engineering, procurement, and construction contracts. LNG Alliance however again declined to disclose further details.

The shipping cost to India is 42% lower from Mexico’s Pacific coast than from the US Gulf coast as the route is shorter and there is no Panama Canal fee. “The resulting pricing point, less than $5/mn Btu on a long-term basis, makes it a clear contender for replacing coal in India,” Chezhian said.

India offers huge opportunity

The south Asian nation at present has a strong dependence on coal and fuel oil for energy generation and industrial uses, and the government plans to shift toward a more natural gas driven economy over the next decade.

“However, there is a downstream pipeline bottleneck which presents an opportunity to adopt a virtual pipeline infrastructure for a quicker and cost-effective solution to transport natural gas throughout the country. We are talking about more than 40% of the hinterland that is hungry for gas,” Chezhian said.

Within the Asian market, Chezhian believes, India's economic growth will outpace most of the other countries and the country will emerge as a global powerhouse in the coming decade. “The ease of doing business, well-established natural gas regulations, robust and rapidly growing domestic gas demand, highly skilled and qualified pool of talent, a clean energy friendly tax structure, and a safe return on investment make India our preferred choice,” he added.